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Banks struggle to meet cash reserve ration as financial markets tighten

30 September 2015, 09:32 PSCU

Nairobi - Banks struggled to meet the cash reserve ratio (CRR) requirement as firms paid taxes, recording a deficit of nearly KES 10 billion as financial markets tightened.

For the week ending September 16, the banks had a deficit of KES 9.67 billion in CRR – the fraction of deposits put at the Central Bank of Kenya (CBK) without earning interest – against the requirement of 5.25 percent or KES 130.7 billion.

The CBK weekly report said: “Commercial banks’ clearing account recorded a deficit of reserve requirement of 5.25 per cent or KES 130.7 billion in the week ending September 16, 2015.”

At the same time, the institutions were finding it difficult securing cheap money from one another. The CBK said security of cash in the market saw the interbank rate shot up by more than 4.5 percentage points to 17.93 per cent in just five days.

Read Also: Family Bank to issue 10 billion shilling bond

The average interbank rate increased to 17.9 per cent ending September 16, 2015 from 13.4 per cent in the previous week. “The volume transacted increased to KES 22.8 billion from Kshs14.9 billion traded in the previous week”, said the CBK.

The banks regulator said money was scarce as tax payments fell due in the week. Value added tax and withholding taxes, among others, are normally due by the 20th of each month. That meant corporates had to pay last Saturday, thereby trapping cash in Kenya Revenue Authority accounts at the CBK and some commercial banks.

The money market was relatively tight during the week ending September 16, 2015 on account of tax remittances by Commercial banks,” said the CBK in the report.

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- News24


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