Increased lending in the banking sector saw the liquidity position for most institutions falling in the last six month. Latest statistics from the Central Bank of Kenya show that as at end of June 2011, liquid assets amounted to Sh522.2 billion while total liquid liabilities stood at Sh1.3 trillion, resulting in an average liquidity ratio of 38.9 per cent. This was lower than the 45.1 per cent registered in June 2010 but which is above the statutory limit of 20 per cent. "The decline in liquidity is attributed to increased lending to the private sector," says CBK in the report that covers development if the sector the six months of 2011, compared to a similar period last year.
The report covers 43 commercial banks, 1 mortgage finance company, 6 deposit taking microfinance institutions, 2 credit reference bureaus, 3 representative offices and 124 foreign exchange bureaus. For the period, the sector saw loans and advances to customer growing at a much faster rate than the deposits. While loans and advances to customer grew by 32.7 per cent (from Sh828.9 billion to Sh1.1 trillion), deposits from customers grew by 16.7 per cent (from Sh1.2 trillion to Sh1.4 trillion).
However, according to market analyst Aly Khan Satchu, this is not a worrisome situation but points to a massive capital raising from the sector in the near future. "Unless there is a massive liquidity risk in the market, this is not a problem," said Satchu on phone. "But it may mean that banks have to look for more capital but that part has not reached yet."
For the period, the banking sector registered strong capital levels in June 2011 with total capital increasing by 25.6 per cent from Sh191.1 billion in June 2010 to Sh240.1 billion in June 2011. Shareholders' funds increased by 19.2 per cent from Sh222.3 billion to Sh264.9 billion. In terms of profitability, the sector registered a 16.9 per cent growth in pre-tax profits, from Sh34.9 billion to Sh40.8 billion.
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