Bank’s Holding in Government Papers Increases to 55.3 Percent

T-bills subscription remained high but declined slightly during the week to 172.5 percent compared to 176.3 percent recorded the previous week according to the weekly report released by Cytonn Investments.

The subscription rates for the 91, 182 and 364-day papers came in at 221.2, 168.2 and 157.5 percent respectively compared to 298.6, 196.2 and 107.5 percent respectively recorded the previous week.

Yields on the 91, 182 and 364-day papers remained unchanged at 8.7, 10.4 and 10.9 percent respectively, from the previous week. The accepted yields on all three papers came in at the same rate as the weighted average market yields, with the overall acceptance rate at 78.5 percent compared to 70.4 percent the previous week.

The government accepted 32.5 billion shillings of the 24.0 billion shillings on offer for this auction an indication that the market has reacted to the government’s efforts to maintain the yields low by bidding at rates equivalent to the accepted weighted average yields on all short-term papers.

Bank’s holdings in government papers have increased to 55.3 percent of total debt equivalent to 1.1 trillion shillings from 51.1 percent equivalent to 1.0 trillion shillings at the beginning of the year as investing with the Central Bank offers a better risk-return proposition for the banks given the capping of interest rates. The increase is equivalent to 23.2 percent on an annualized basis, indicating that banks find it better to lend to the government than to the private sector due to the interest rate cap.

The market liquidity was stable as can be seen by the average interbank rate, which closed the week at 5.6 percent compared to 5.5 percent recorded the previous week while the average volumes transacted declined to 7.9 billion shillings from 14.7 billion shillings.  During the week, there was a net liquidity withdrawal of 25.7 billion shillings compared to a 12.4 billion shillings’ injection the previous week. The net liquidity withdrawal was due to T-bond sales and term auction deposits amounting to 20.0 billion shillings and 24.0 billion shillings respectively.