How Kenyan Churches, Households Managed To Overtake Banks In Treasury Bill Holdings
For the first time, individual and non-traditional investors, grouped as “others” by the Central Bank of Kenya (CBK), now hold a majority stake in Treasury bills, surpassing commercial banks.
CBK data shows that as of June 2024, commercial banks’ share of Treasury bills had dropped to 33.8 percent, down from 42.8 percent the previous year, while the “others” category surged to 56.2% of Ksh 615.8 billion in government securities.
The “others” category includes churches, parastatals, Sacco societies, NGOs, and individual investors. Traditionally overshadowed by institutional investors such as banks, insurers, and pension funds, this group’s holdings skyrocketed by 94.2 percent over the year to June 2024, reaching KSh 346.1 billion.
In contrast, banks reduced their holdings by 20.9 percent to KSh 208 billion, signaling a seismic shift in Kenya’s investment dynamics.
Digital Innovation Spurs Interest
A key driver of this shift is the CBK’s launch of DhowCSD, a digital platform that enables investors to purchase Treasury bills and bonds via mobile phones. By simplifying the previously cumbersome process of opening accounts and completing paperwork, DhowCSD has made government securities more accessible to individual and smaller investors.
The platform’s user-friendly nature has democratized investment opportunities, attracting a broader spectrum of Kenyans. As of September 2024, individual investors accounted for 79.4 percent of accounts on DhowCSD, with NGOs representing 1.3 percent.
Rising Returns on Treasury Bills
The surge in Treasury bill uptake is also fueled by their attractive returns. In June 2024, Treasury bill yields averaged 16.8 percent, significantly higher than the single-digit returns seen in prior years. This rise is linked to CBK’s increased benchmark lending rate, implemented to curb inflation and stabilize the shilling. Compared to traditional investment vehicles such as bank deposits and equities, government securities now offer more competitive returns, drawing in both individual and institutional investors.
Homes, churches overtake banks in T-bill holdings
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— BusinessDaily (@BD_Africa) November 20, 2024
Impact on Commercial Banks
The growing popularity of Treasury bills has disrupted the banking sector. Banks fear losing fixed-term depositors to Treasury bill investments, which could increase their deposit costs and heighten competition for wholesale funds.
Some have called for government intervention to mitigate risks to financial intermediation, as shifting preferences could impact their liquidity and operations.
Despite the changes, commercial banks remain dominant in the broader domestic debt market, holding KSh 2.07 trillion in Treasury bonds by June 2024—44.8 percent of all outstanding long-term government securities.
Treasury bonds, along with Treasury bills, are integral to the government’s borrowing strategy, which relies heavily on domestic debt to meet funding needs.
The Bigger Picture
Kenya’s total domestic debt reached KSh 5.41 trillion by June 2024, accounting for 51.2 percent of the country’s KSh 10.56 trillion public debt. Treasury bills, with their short-term maturities, provide the government with immediate funding, while Treasury bonds serve as long-term financing instruments.
The growing role of individual and non-traditional investors, driven by digital platforms like DhowCSD, is reshaping Kenya’s financial landscape. While these changes present opportunities for diversification and inclusion, they also pose challenges for traditional financial institutions as they adapt to the evolving investment environment.
