The share of government domestic debt held by banking institutions fell to below 50 percent at the end of January for the first time in almost 10 years.
Data released by the Central Bank of Kenya (CBK) shows that banks held 49.94 percent of domestic debt or Sh2 trillion as other classes of investors including pension funds bought more of the fixed income securities.
Banks accounted for 51.24 percent of T-bills and bonds at the end of June 2021 but this had dropped to the current levels despite the lenders continuing to raise their purchase of treasuries.
The lenders bought an additional Sh145 billion of the securities in the seven-month period.
Banks have been aggressively buying treasuries since the outbreak of the Covid-19 pandemic which raised defaults and hurt many sectors of the economy.
Other investors have also flocked to the risk-free assets which offer stable returns that range from 7.3 percent to more than 12 percent.
Pension funds meanwhile raised their stake from 30.6 percent to 31.39 percent over the same period, indicating that non-bank investors made relatively more incremental investments.
“The schemes continued to invest heavily in government securities with the asset class accounting for 44.12 percent of the total assets under management,” the Retirement Benefits Authority (RBA) said in its industry report for 2021.
Pension schemes prefer long-term investment since their customers will require their money after years and decades as opposed to banks which face constant liquidity needs for depositors.
Kenya’s gross domestic debt currently stands at Sh4.08 trillion where government securities account for more than 97 per cent of the total debt.
The government has also cut the amount of debt held in form of short-term Treasury bills which are largely used by banks for liquidity management besides earning returns.
The amount of debt held in the short-term debt securities fell from 20.7 percent in June 2021 to the current 17.19 percent.