Africa Market Update - July 2015

MARKET UPDATE – AFRICA | July 2015
A bout of
resilience by the
shilling could be
one of the main
factors that have
created a window
for the Central
Bank to allow a
rise in liquidity
in the money
market.
-1.3 %
Kenya Shilling
change month-onmonth
NPLs to range from 32.0% - 35.0% based on
the prevailing business climate.
NPLs as a % of Total Loans
Source: Bloomberg, StratLink Africa
With the business climate battered by a
high risk perception following terror-linked
threats, the hike in the benchmark rate
could also be geared towards dis-incentivizing
commercial bank lending to adversely
affected businesses. The National Treasury
has also proposed to raise the core capital
requirement for commercial banks five-fold
to USD 51.3 Million by 2018.
DEBT MARKET UPDATE
Yields continued to rise between May and
June 2015 on the back of tightening liquidity
that saw the interbank rate soar to a
high of 13.6% on June 05th, 2015. We note,
however, that in the latter half of June 2015
liquidity was on the rise driven by government
payments, net redemptions of government
securities and maturities of Term
Auction Deposits. As such, we could see a
downtrend in yields if this trend persists in
the near term. We note, however, that monetary
policy is likely to remain focussed on
the strength of the shilling, necessitating
tightening as and when the local unit shows
fragility.
Bloomberg BVAL Yields Index
Source: Bloomberg, StratLink Africa
Interbank Rate Corrects to Single Digits
In the latter half of June 2015, the interbank
rate corrected back to single digits with the
money market experiencing a net liquidity
injection of USD 106.6 Million between
June 11th and 17th, 2015, up from USD 43.6
Million in the preceding week 8 . In line with
rising liquidity, bid-to-cover ratios in the T-
Bill market surged with the 91.0 Day paper
touching a high of 3.1 in the week to June
04th, 2015.
Interbank Rate Trend
Source: Central Bank of Kenya, StratLink Africa
Shilling Claws Back Lost Ground
A bout of resilience by the shilling could be
one of the main factors that have created a
window for the Central Bank to allow a rise
in liquidity in the money market. We expect
the shilling is to remain in the 97.0 – 100.0
units of exchange to the greenback band
between July and August 2015.
8 Central Bank of Kenya
6 | StratLink Africa Ltd.
www.stratlinkglobal.com