The overnight cost of borrowing among commercial banks jumped to the highest point in the year-to-date a week ahead of the polls on reduced liquidity, official data shows.
The Central Bank of Kenya (CBK) has reported that banks were demanding an average of 9.22 per cent to lend to each other overnight by Wednesday last week, a rate higher than the price the government paid for the 91-day Treasury bills at 8.2 per cent during the auction last Thursday.
The average interbank rate for the week ended August 2 rose from 7.24 per cent to 8.2 per cent — equalling the average return investors got for the three-month Treasury bill.
Analysts at Cytonn Investments attributed the rise in the overnight rate to “liquidity being skewed towards a few large banks”, indicating that cash-strapped smaller lenders are finding it hard accessing cash.
Large banks have been accused of refusing to lend smaller lenders citing risk, forcing them to resort to the expensive CBK window.
The CBK said transactions that added liquidity into the market and those that reduced it were “fairly matched” in the week.
“However, due to uneven distribution of liquidity the central bank was on both sides of the market. It withdrew excess liquidity from segments of the market with surpluses and used reverse repos to support segments facing temporary liquidity shortages,” the CBK says in the weekly bulletin.
About Sh59.4 billion was withdrawn from the money market, which was more than the Sh58 billion that was injected, resulting in a net liquidity of negative Sh1.3 billion.
The main source of liquidity was government payments at Sh26.6 billion, Treasury bills redemptions (Sh19.5 billion) and reverse repurchase agreements (Sh11.9 billion).
However, payment of taxes by banks to the tune of Sh22.1 billion, investment in Treasury bills (Sh14.6 billion), sale of Treasury bonds (Sh5.2 billion), repurchase agreements (Sh5 billion), term auction deposit (Sh2.5 billion) and reverse repo maturities (Sh1.4 billion) sucked liquidity from the market.
Average interbank rate at the end of July was 7.2 per cent, Cytonn said in its weekly market update, after increasing from 4.8 per cent in June.
“During the month there was a net liquidity injection of Sh61.8 billion in the money market with the bulk of it coming from government payments.
The net liquidity position was an increase from a net liquidity injection of Sh22.5 billion in June,” Cytonn said.