Banking Circular No. 4 of 2020 - Review of Cash Reserve Ratio

Haile Selassie P.O. Box 60000 - 00200 Nairo Telephone: 2860000, Fax: 34 March 27, 2020 BANKING CIRCULAR NO. 4 OF 2020 TO ALL CHIEF EXECUTIVES OF COMMERCIAL BANKS, MORTGAGE FINANCE COMPANY AND MICROFINANCE BANKS REVIEW OF THE CASH RESERVE RATIO The Monetary Policy Committee (MPC) on March 23, 2020 reduced the Cash Reserve Ratio (CRR) to 4.25 percent from 5.25 percent. This policy action is expected to release Ksh.35.2 billion as additional liquidity to banks to directly support borrowers that are distressed as a result of the Coronavirus (COVID-19) pandemic.

In order to access the additional liquidity occasioned by the reduction of CRR, commercial banks, mortgage finance company and microfinance banks, will be required to submit their requests as per the attached template (Annexure I) to the Director, Bank Supervision with the necessary supporting documents detailing how the borrowing, to be funded by the reduced CRR amount, is related to the impact of COVID-19. In addition, banks will be required to submit monthly updates on the utilization of the additional liquidity as per the attached template (Annexure II).

In addition, commercial banks, mortgage finance company and microfinance banks will be required to always observe the daily CRR requirement of 3 percent and monthly average CRR of 4.25 percent.

The purpose of this circular therefore is to provide guidance to commercial banks, mortgage finance company and microfinance banks on how to access the additional liquidity following the reduction of CRR from 5.25 percent to 4.25 percent. The new CRR takes effect immediately.

Yours faithfully,

GERALD NYAOMA DIRECTOR, BANK SUPERVISION C.c.: Dr. Habil Olaka Chief Executive Officer Kenya Bankers Association International Life House, Mama Ngina Street NAIROBI Ms. Carol Karanja Ag. Chief Executive Officer Association of Microfinance Institutions in Kenya (AMFI-Kenya) Methodist Ministries Centre, 1st Floor, Right Wing P.O. Box 10701-00100 NAIROBI

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