Inter-bank lending up in 2018 first trading week

What you need to know:

Commercial banks lent cash to each other at an average interest rate of 7.13 per cent, slightly reduced from 7.63 per cent the previous week for the loans which are usually repaid within a week, with most of them being cleared in a day.

Commercial banks increased their borrowing from each other in the first trading week after long December holidays, signalling increased withdrawal and payment orders by clients.

Banks borrowed Sh21.39 billion through the interbank market in the week through Wednesday last week, Central Bank of Kenya (CBK) says in the latest weekly bulletin, a growth of 56.19 per cent over previous week.

Schools opened for the first term in the period, while businesses also resumed operations with increased optimism after a bruising election year which saw most of them scale back on new investments.

“Activity in the interbank market increased during the week ending January 3, 2018, as trading picked up, after the festive season,” CBK says in the report, adding that the cash held by the banks above the statutory 5.25 per cent of the deposits fell to Sh7 billion from Sh7.8 billion a week earlier.

The banks lent cash to each other at an average interest rate of 7.13 per cent, slightly reduced from 7.63 per cent the previous week for the loans which are usually repaid within a week, with most of them being cleared in a day.

READ: Small banks take up costly credit as liquidity tightens

Liquidity in the market tightened during the week largely due to maturity of Reverse Repurchases (Repos) amounting to Sh35.5 billion.

Through Reverse Repo deals, the CBK temporarily buys government securities from banks, helping improve their cash positions.

The banks also paid Sh17 billion due tax to the Kenya Revenue Authority in the review period, resulting in net liquidity (cash) withdrawal stood at Sh7.6 billion compared to Sh6.0 billion the previous week.

This was after the CBK injected Sh22.8 billion in the market through fresh Reverse Repo deals to counter the tight liquidity.

The interbank rate continued to fall on Monday to stand at 5.6 per cent, with banks transacting Sh14.30 billion.

“They (CBK) stayed out of the repo market citing a square market,” analysts at Genghis Capital said in a note to investors on Tuesday.