The World Bank has cautioned commercial banks in Kenya on the growing sovereign debt risk due to heavy investments in government securities, which have risen by about Sh150 billion in the last six months.
Sovereign debt is borrowing by a national government, usually through bonds, bills, or loans, to fund public investment and support the economy. Sovereign debt could carry the risk that a government may default on its financial obligations, like bonds, or impose regulations that negatively affect foreign exchange agreements.
The multilateral lender says the exposure of banks in Kenya to government securities remains high, with the lenders holding approximately Sh2.2 trillion in government securities, which is equivalent to about 35 percent of domestic debt and about 27 percent of total banking sector assets.
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