Small banks are still struggling for cash amid tighter liquidity in the market as their larger peers remain cautious on lending to them in the interbank market, analysts at Dyer & Blair Investment Bank and Renaissance Capital say.
The liquidity in the Kenyan banking sector remains skewed in favour of larger lenders. The collapse of three lenders (Chase Bank, Dubai Bank and Imperial Bank) between August 2015 and April 2016 was a major factor that led to the defensive position adopted by the larger banks in the interbank market.
Latest Central Bank of Kenya (CBK) data shows that lenders’ reserve cash position has been in the negative since mid-January. As at the end of last week, the banks had a deficit of Sh5.6 billion on the 5.25 per cent average reserve requirement, while in the previous week the deficit stood at Sh1.2 billion.
The interbank rate, at which the lenders borrow from each other on short- term basis, averaged eight per cent last month, having gone up progressively from 4.9 percent last October.
The imposition of the rate cap law has also robbed the smaller lenders of the opportunity to attract deposits by offering higher interest rates, given that they cannot raise their lending rates in tandem to maintain margins.
“Skewed liquidity distribution between the three tiers of banks has in the last one year been compounded by flight to safety of deposits following the placement of Chase and Imperial banks under receivership as well as the introduction of a floor on interest paid to deposit accounts under the rate cap law,” said Dyer & Blair analyst Edwin Chui in the February fixed income update.
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Credit: Business Daily