Market News

Market liquid but skewed against smaller lenders

Government payments raised liquidity. FILE PHOTO | NMG 

Release of cash by government in payments to its departments and agencies increased market liquidity last week for large banks, but left smaller financiers starved of money, data from the Central Bank of Kenya shows.

The increased liquidity raised commercial banks’ reserves by Sh21.6 billion above the CBK legal minimum of 5.25 percent of outstanding deposits in the week to February 6.

“The money market was liquid during the week ending February 6, largely supported by government payments. Open market operations remained active. Commercial banks’ excess reserves stood at Sh21.6 billion in relation to the 5.25 percent cash reserves requirement (CRR),” said the CBK in its weekly update on markets.

However, the skewed distribution of market liquidity did not favour small banks, which pushed the interbank rate up to 5.19 percent from 4.44 percent in the previous week — an upward change of 0.75 percentage points.

“The average interbank rate increased to 5.19 percent on February 6 compared to 4.44 percent on January 30, mainly reflected in trading by some banks,” said the CBK. “The average number of interbank deals per day decreased to 28 from 34 in the previous week and the value traded also declined to Sh10.1 billion from Sh17.9 billion in the previous week.”


That big banks were flush with cash was also demonstrated by the bidding in the treasury bills market. There was a huge oversubscription for the treasury instruments especially for the 364- and 182-day tenors.

Investors offered Sh31.16 billion for the 364-day paper even though the Treasury was looking for only Sh10 billion.