11 Kenyan listed banks invest Ksh153bn in govt bonds

Kenya's banking sector has been facing challenges due to the interest rate cap that came into effect in 2016. In response to this, 11 Kenyan banks listed at the Nairobi Securities Exchange have significantly increased their investment in government securities to over 153 billion shillings. This move was aimed at leveraging higher returns in the face of the cap on interest rates. The sector has seen a wave of mergers and acquisitions as banks grapple with the difficult operating environment. The high investment in government securities reflects the banks' struggle to operate profitably under the interest rate cap. Muslim Ghatib, a Senior Research Analyst at Kingdom Securities, shed light on the banking issues in Kenya during a recent interview with CNBC Africa. According to Ghatib, the government's need for funds is driving the continued demand for domestic debt. Despite efforts to stabilize rates and prevent aggressive bidding, banks remain attracted to government securities due to the high investor appetite in the market. The interest rate cap is expected to keep banks invested in government securities for the foreseeable future. The banking sector in Kenya is shifting towards a focus on volumes rather than margins. Larger banks are targeting different client segments, with some catering to corporates while others serve retail customers. Banks like Equity Bank have seen a decline in loans to retail customers but have increased their investments in government securities. This shift indicates a strategic move by banks to capitalize on profitable segments and navigate the challenging operating environment. Foreign investors continue to be active in the Nairobi Securities Exchange, showing confidence in the market's potential. The potential lifting of the interest rate cap could lead to a resurgence in banking stocks, attracting more foreign investment. Despite the challenges in the sector, banking remains profitable, with a few key players controlling a significant portion of the market turnover. To ensure survival in the tough environment, banks are focusing on reducing operational expenses, leveraging technology for revenue generation, and targeting diverse client segments. Small banks are facing pressure to consolidate with larger institutions to remain competitive and profitable. The competitive landscape in East Africa has prompted discussions about reducing the number of banks to create stronger financial institutions with the capacity to support large projects. Regional banks operating in East Africa face varying prospects in 2017. While banks in some jurisdictions may see growth opportunities, those in conflict-prone regions like South Sudan may face challenges. Despite the uncertainties, there is optimism for growth and stability in the region's banking industry, with banks exploring opportunities in different markets to diversify their operations. In conclusion, the Kenyan banking sector is navigating a complex operating environment characterized by the interest rate cap and increasing competition. Banks are adapting their strategies, focusing on government securities, and exploring regional opportunities to ensure profitability and sustainability in the evolving East African market.