Interbank loans rate hits an eight-month high

Money Markets

The National Treasury building in Nairobi. PHOTO | FILE 

By CHARLES MWANIKI

Banks have lately paid a steep price for borrowing from each other as the rate hit an eight-month high of over 10 per cent.

Lenders have resorted to the emergency borrowing, to maintain cash positions at the Central Bank of Kenya (CBK) above the regulatory minimum, as they surrendered taxes paid by customers to the Treasury.

Interbank rates have risen from 8.8 per cent to 10.27 per cent over the past one-and-a-half weeks, pushing it nearly two percentage points above the punitive Central Bank Rate (CBR) of 8.5 per cent. Lending volumes for last week stood at Sh106.7 billion compared to Sh75.6 billion the previous week.

Most interbank loans are for maturities of one week or less, with the majority being overnight. Banks borrow and lend money in the interbank market in order to manage liquidity and satisfy regulations such as CBK cash reserve requirements.

“The market has been tight out of a combination of factors. CBK has continued its mop-up of excess cash, and banks were looking to beef up their cash reserve requirement (CRR),” said Commercial Bank of Africa senior dealer Joshua Anene.

CBK, however, reported in its weekly bulletin released last Friday that liquidity is slowly returning to the market after being constrained in April as many companies were paying taxes and banks surrendering cash to the government through payment for fixed-income securities floated by the National Treasury.

“The money market was relatively liquid during the week ending April 29, 2015, largely on account of government payments and open market operations maturities.

Commercial banks’ clearing account balance in the week ending April 29 had a surplus of Sh10.33 billion above the cash reserve requirement of 5.25 per cent (Sh122.4 billion) compared with a deficit of Sh7.34 billion recorded in the previous week,” said CBK in the bulletin.

The government payments last week stood at Sh37.5 billion with dealers saying this was mostly in disbursement to counties. At the same time, the relatively tight market has failed to offer as much support to the shilling as would have been hoped.

cmwaniki@ke.nationmedia.com