(Nairobi) – Non-bank investors, including households, churches, and NGOs, have overtaken commercial banks in holding Treasury bills, marking a rise in the appeal of government securities among individual investors.
For the first time, a growing segment of investors, referred to as “others” by the Central Bank of Kenya (CBK), has surpassed the traditional dominance of banks in holding Treasury bills. Data from the CBK reveals that by June 2024, commercial banks’ share of the country’s Treasury bills stood at 33.8 percent, a significant drop from 42.8 percent the previous year. Meanwhile, “others” now hold 56.2 percent of these securities, marking a notable shift in Kenya’s investment landscape.
The category of “others,” which includes parastatals, Sacco societies, NGOs, and individual investors, was previously much smaller in comparison to larger institutional investors such as banks, insurers, and pension schemes. However, in the year leading to June 2024, this group’s holdings grew by 94.2 percent to KSh 346.1 billion, while banks reduced their holdings by 20.9 percent, amounting to KSh 208 billion.
This shift comes as a result of several factors, including the introduction of the DhowCSD, a digital platform developed by the CBK. The DhowCSD platform allows individuals and other investors to purchase Treasury bills and bonds via mobile phones, a convenience that has spurred interest from the general public. Before this innovation, investors had to physically visit CBK offices to open accounts and complete lengthy paperwork to buy government securities.
The rise in Treasury bill returns has further fueled this interest. In June 2024, the average return on Treasury bills surged to 16.8 percent, up from single-digit returns in previous periods. This increase can be attributed to the CBK’s decision to raise the benchmark lending rate, aimed at controlling inflation and stabilizing the exchange rate. With returns outpacing those of traditional investment options such as bank deposits and equities, government securities have become a more attractive investment avenue for both individual investors and institutions.
The new DhowCSD platform has dramatically changed the way investors engage with government securities, offering an efficient, automated method of buying Treasury bills and bonds. This digital convenience has disrupted the banking sector, with commercial banks expressing concern about potential risks to their operations. Banks are particularly worried about losing fixed-term depositors to Treasury bill purchases, which could drive up the cost of deposits and heighten competition for wholesale deposits. They have called on the government to intervene and address these concerns, as the shift away from bank deposits to government securities could reduce the banks’ role in financial intermediation.
In addition to individual investors, non-profit organizations, including churches, have also begun to engage more actively with Treasury bills. As of September 6, 2024, individual investors held 79.4 percent of the accounts on the DhowCSD platform, while NGOs held 1.3 percent. Despite this, commercial banks continue to hold the largest share of Kenya’s domestic debt, which includes both Treasury bills and bonds. By the end of June 2024, banks held 45.12 percent of Kenya’s total domestic debt, while other investors held just 12.92 percent.
While the new trend sees non-bank investors increasing their share of government securities, the overall amount of government domestic debt held by banks remains substantial. Commercial banks held KSh 2.07 trillion in Treasury bonds (44.8 percent of all outstanding long-term government securities) as of June 2024, up from KSh 1.82 trillion the previous year. Other investors held KSh 621.1 billion in Treasury bonds, and Treasury bills and bonds together form the bulk of the government’s domestic borrowing.
The trend is reflective of Kenya’s broader domestic debt strategy, with a total outstanding domestic debt of KSh 5.41 trillion as of June 2024, which represents 51.2 percent of the country’s total public debt of KSh 10.56 trillion. Treasury bills, with their short-term maturities, are a vital tool for the government to meet its immediate borrowing needs, while Treasury bonds serve as longer-term investments, offering interest payments every six months.
The entry of digital platforms like DhowCSD is reshaping how Kenyans and institutions engage with government securities, offering new opportunities but also presenting challenges to the banking sector.