Banks’ excess cash pile at CBK rises to Sh50bn

Commercial bank reserves stayed above the 4.25 percent cash reserve ratio (CRR) set by the Central Bank rising to Sh50.3 billion last week.

This was an increase from Sh41.3 billion a week earlier, representing a 21.7 percent jump. The high level of excess reserves in the money markets reflects State repayments, but also lower economic activity.

“The money market was liquid during the week, supported by government payments, which partly offset receipts from tax and auction of government securities,” said CBK in the bulletin.

The reserves above the statutory requirement have risen sharply since the downward revision of the CRR to 4.25 percent from 5.25 percent. They stood at Sh38.8 billion in the last week of March.

The main objective of the cut was to enable banks free more cash for lending, but the rising level could reflect low uptake by the economy.

“By reducing Cash reserve ratio to 4.25 percent, Sh35.2 billion additional liquidity will be available to banks to directly support borrowers that are distressed as a result of Covid-19,” said the Central Bank of Kenya (CBK) Monetary Policy Committee during it latest briefing.

The rise comes as interbank rates have shot past the six per cent mark for the first time since mid-December last year.

The rates have continued to rise from four percent since the country’s confirmation of the first Covid-19 case to six percent last Friday, with banks moving an average of Sh5.6 billion last week from Sh8.15 billion the previous week.

The rising interbank rates are an indicator of smaller banks having liquidity problems in a market dominated by risk-averse bigger players.

With excess reserves piling at the CBK, the ideal situation would be for the interbank rates to cool off but large lenders appear ready to keep idle cash than lend to smaller peers.