Commercial banks are seizing arbitrage opportunities amid soaring yields on government short-term paper by enticing the public with attractive deposit schemes, offering double-digit returns in exchange for their capital.

Arbitrage trading is a practice that seeks to take advantage of price discrepancies in a single security trading in two different markets for profits.

In Kenya, yields on Treasury Bills embarked on an upward trajectory, reaching a striking 15 per cent last week, making them attractive to banks.

With an eye firmly fixed on capitalising on the current yield surge, Bank of Baroda has launched a limited-time offer tailored to its valued customers.

The bank is now inviting customers with deposits exceeding Sh10 million to participate in a scheme that promises double-digit returns for investments ranging from 91 days to one year.

Bank of Baroda is urging customers to take the offer: “Dear customer, limited period offer for our valued customers with Deposit Sh10 million and above: Exciting fixed deposit rates for you,” they said in a text message to customers, setting the stage for an investment opportunity.

The thrust of this offer lies in the enticing returns it offers to depositors, as the Bank of Baroda scheme boasts a buffet of interest rates, including a substantial 12.25 per cent for investments held for 181 days, an equally impressive 12.00 per cent for a 12-month tenure, and a still-respectable 11.75 per cent for those looking for shorter commitments of 91 days.

These double-digit figures are undoubtedly luring investors seeking a handsome reward for their financial prudence. Central bank website shows that the industry average deposit rate is at 8.1 per cent.

Banks are tapping into the difference between the yields they can earn from short-term government securities and the returns promised to depositors. In essence, they borrow from the public at relatively lower rates and invest in government paper offering higher yields, pocketing the difference as profits.

This shows the dynamic and innovative approach that banks are increasingly adopting due to evolving market conditions. It allows banks to not only capitalize on the current financial climate but also helps them attract and retain high-value customers who seek to grow their savings in times of economic uncertainties.