Banks and Pension Funds Dominate Kenya’s Domestic Debt


Banks and pension funds have dominated government domestic debt stock according to the latest CBK weekly bulletin. Banking institutions have grown their share of local debt from 53.63 percent in September 2019 to 54.94 percent in August 2020. On the other hand, pension funds have increased their share from 28.77 percent in September to 29.37 in August 2020.

Institution 30 September 2019 28 August 2020
Banking institution 53.63% 54.94%
Insurance companies 6.33% 6.12%
Parastatals 7.13% 5.34%
Pension Funds 28.77% 29.37%
Other Investors 4.13% 4.23%
TOTAL 100 100
Domestic debt composition: CBK

On 30 September 2019, treasury bills amounted to Ksh928.91 billion while treasury bonds amounted to Ksh1.82 trillion. On the other hand, on 28 August 2020 treasury bills had declined marginally to Ksh918.77 billion while treasury bonds rose to Ksh2.417 trillion.

The domestic debt has seen the ratio of treasury bills to treasury bonds change from 33:64 on 30 September 2019 to 27:71 as of 28 August 2020. Domestic debt grew from Ksh2.852 trillion in September 2019 to Ksh3.178 trillion in June 2020.

The total public debt rose from Ksh5.96 trillion in September 2019 to Ksh6.693 trillion as of June 2020.

Institute of Public Finance Kenya

The Institute of Public Finance Kenya (IPF) says that between 2017 and 2019 Kenya Commercial Bank (KCB), Equity Bank, and Cooperative Bank of Kenya were the largest holders of government’s domestic debt held by commercial banks.

The implication is that the government and citizens are competing for loans from the same commercial banks leading to a crowding-out effect. Commercial banks prefer to lend to the government since they view it as a low-risk investor as compared to the citizens.

The research findings indicated that domestic debt was more expensive than external debt. IPF adds that the government incurs a higher cost of borrowing domestically at 66% as compared to the cost it incurs externally at 34% and it has a higher refinancing risk due to the high number of treasury bills issued as compared to treasury bonds.

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