Commercial banks have raised holdings of government securities
by nearly 11 per cent or Sh125 billion in the past year as they fought
off effects of rate cap.
Most of the investment in the
gilt-edged instruments was done in the past five months, indicating the
extent to which the institutions have stepped up their search for
guaranteed returns.
While the proportion in terms of
these investments declined slightly in the six months to the end of last
year relative to others, it rose afterwards to hit 55.2 per cent as at
May 25.
Analysts pointed out that banks, being the
largest investors in State securities, have increasingly turned to the
debt instruments for sure returns since the enactment of the
restrictions on interest rates in late 2016.
“The more important thing about the industry is to look at the
volumes of the investments in the period. It is quite substantial. This
is deliberate. It was the way for them to go after the rate caps and so
they have become quite big in this way,” said Alexander Muiruri, fixed
income expert with Kestrel Capital.
As
per the latest update by Kestrel Capital, total domestic borrowing
stood at Sh2.341 trillion compared to Sh2.146 trillion at the end of
last year and Sh2.076 trillion at the end of June last year.
Johnson
Nderi, a corporate finance manager with ABC Capital, said the increase
in volumes of domestic debt held by commercial banks was in line with
their expanded balance sheets even as they dealt with constraints
introduced by compliance with IFRS-9.
IFRS-9 requires
commercial banks to recognise chances of default on a loan at the outset
rather than when it actually happens. Default on lending to the
government is the lowest, thus they are considered gilt-edged.
No comments :
Post a Comment