This archive report was first published on 1 October 2019.
Published on October 1, 2019, by Patrick Alushula.
Kenya's interbank rate has hit a nine-month high, with small banks struggling to access funds at affordable rates. The interbank rate, which is the average rate at which banks borrow from each other on an emergency basis, stood at 7.45 percent last week.
Smaller banks were forced to pay as high as 10 percent to access overnight loans from larger peers, despite the excess liquidity in the market. This is attributed to the Central Bank of Kenya (CBK) offering attractive mop-up rates, which are posing stiff competition for smaller banks.
Churchill Ogutu, an analyst at Genghis Capital, noted that the CBK's attractive rate of about 8.9 percent on repurchase agreements (repos) is making it more sense for banks with excess liquidity to lend to the CBK rather than smaller banks.
“CBK has been coming in the market at rates touching as high as nine per cent for 7-day repo. It makes more sense for banks with excess liquidity to lend to CBK than lend to tier II or III players,” said Mr Ogutu.
He further stated that the CBK's rate is more attractive than the 91-day and 182-day Treasury bill, making it easier for those with excess liquidity to favour the CBK.
According to CBK data, the value traded on the interbank market last week decreased by 15.2 percent to Sh7.8 billion from Sh9.2 billion in the previous week.
Mr Ogutu also noted that the Treasury has been issuing long-term papers, which have done little to reduce banks' excess liquidity given their preference for short-tenor papers.
