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State’s Development Bank negative liquidity worsens

Central Bank of Kenya
Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG 

State-owned Development Bank of Kenya (DBK) continued in negative liquidity position at the end of the first nine months of the year even as plans to sell it remained in limbo.

The bank is among two others – National Bank of Kenya #ticker:NBK and the Consolidated Bank of Kenya – that have been approved for sale along with a number of other parastatals. The plans are, however, yet to take off even after the State sought to hire a chief manager in charge of transactions as it moved to unlock the stalled sale some four months ago.

DBK’s liquidity ratio position stood at negative 21.6 percent as at the end of September against a legal requirement of 20 percent.

The ratio is the proportion of liquid assets calculated as a percentage of all its deposit, matured and other short-term liabilities.

Liquid assets are considered to be notes and coins, its balances at the Central Bank of Kenya (CBK), balances with other banks after deducting those owed to the same, Kenya’s Treasury bills and other assets the CBK may specify.


With the bank’s negative liquidity position, it means that it is highly constrained in terms of issuing new loans, despite this being its main source of income.

It also means that the company needs to inject 21.6 percent worth of liquidity to be at a neutral position where it has neither excess nor deficiency in meeting the legal requirement.

Although its liquidity ratio is above the minimum requirement of 20 percent, National Bank of Kenya’s total capital to total risk-weighted assets stands at a deficiency of or negative 10.4 percent as at the end of the nine months.

NBK’s core capital to total deposit liabilities also stands at a negative or deficiency of 5.5 percent while core capital to total assets stands at negative 7.9 percent. That limits its ability to take in more deposits.

NBK’s main undoing has been its low capital. The Treasury has injected limited amounts of capital into the institution just as it has with respect to Consolidated Bank that has also been in negative positions in some ratios.

But that has not been enough to put the institutions in the right legal position on the ratios.