A number of small banks in the country are facing a major liquidity crisis amid steep interest rates that have affected the cost of money in the interbank market.

The situation has forced many tier-three banks constantly turn to the Central Bank of Kenya (CBK) for funding assistance through instruments like reverse repurchase, the CBK discount window, and term auction deposits.

These tools are part of Centrals Bank of Kenya’s open market operations designed to either pump liquidity into the market or mop up cash.

According to statistics from the CBK, funding conditions in the money market have diminished in the last few weeks on increased payments to the government.

The commercial bank’s reserve was reduced by Ksh. 4.7 billion vis-à-vis the CRR requirement last week – marking a third-straight week of decreased liquidity within the banking and money market sectors.

Total Deposits

On the same note, banks have been raising lending rates amongst themselves with the interbank lending rate that was already at its highest moving to 17.38% Thursday last week.

The Kenya Banker’s Association (KBA) asserts that the tighter funding conditions have been more profound on small commercial banks that mostly grapple to access funding from major players owing to perceived risks.