Kenya could face new credit crunch, analysts warn

Aug 19, 2015

They said a rise in the interbank rate is cause for concern.

The Kenyan banking system could face another credit crunch, analysts at African Alliance have warned.

This is due to a spike in the interbank rate, which peaked at 26.25 per cent last week, up from 6.9 per cent in early February. This rate sets the price at which banks borrow from each other.

"The fact that this has happened in an environment where Kenyan fund managers have reduced their holdings of government securities by 25 per cent in July, and Treasury bill and bond auctions have consistently failed in the last two months escalates the potential seriousness of the situation," African Alliance's lead economist Chris Becker said in a statement seen by The Star.

The Johannesburg-based researcher added that it is worrying that banks are now paying up to 21 per cent interest on three-month deposits from fund managers despite the central bank injecting liquidity on a net basis in the last two months.

The warning comes after China’s surprise decision to devalue the yuan last week, which is expected to impact Kenyan and other African economies.

The move sent currencies tumbling and fuelled concerns that the continent’s biggest trading partner might be losing its appetite for African exports.ADNFCR-2976-ID-801798017-ADNFCR