NAIROBI, Keny
The Central Bank of Kenya (CBK) has called for deepening of the country’s financial sector. CBK Governor Professor Njuguna Ndung’u told journalists in Nairobi that increased liquidity of the equity and bond markets will attract more investors. “Kenya will deepen its financial sector by developing more innovative financial products, including in the secondary and primary bond markets,” Ndung’u said on Wednesday during the launch of the Financial Times and Stock Exchange (FTSE)-Nairobi Securities Exchange (NSE) Kenya Government Bond Index.
The index will be the world’s first independently calculated benchmark index tracking the principal Kenyan government bond market. Ndung’u said that the new index will be critical for the development of a robust domestic financial market in Kenya. “It will also provide the industry with information in order to encourage an analytic culture,” he added.
He called for the private sector to follow the lead of the government and turn to the debt markets to raise capital for expansion. The governor noted that the collaboration of financial market players has been key to the development of one of the fastest growing bond markets in Africa. “We want to benchmark Kenya with international standards, as the country is setting the pace for the east and central Africa region,” the governor said.
According to government data, the country has achieved a longer maturity profile of its domestic debt instruments. “Government securities average maturity profile rose from eight months in June 2001 to over 5 years currently,” he said. Ndung’u said that the well functioning secondary bond market means the government no longer faces rollover risks associated with short term debt instruments. He added that five project specific infrastructure bonds worth 1.5 billion U.S. dollars have so far been issued due to structuring of the financial sector. “The bonds have set the pace for public, private as well as supranational agencies to tap the market for long term funding through bond issuance,” he said.
Infrastructure increases the capacity for future growth, so debt could be used to construct these vital projects,” he said. He added that most of the government budgetary expenditures is sourced internally and mainly from the domestic capital markets. “This necessitates the need to strengthen the regulators including the Capital Markets Authority and the NSE,” he said. He noted that reforms in the sector have led to lowering of the threshold in the bonds markets in order to promote a saving culture. “The issuance of the 30 year savings development bond and the reduction of the minimum entry into treasury bills have widened the investor base for government securities,” Ndung’u said.
FTSE Group Managing Director for Europe, Middle East and Africa Imogen Hatcher said that the new index will help increase the breadth of financial products in Kenya. “By heightening international visibility, the Kenya securities market will be to attract more funds both internationally and domestically,” she said. Hatcher added that the index will assist in price discovery among the market players as it will behave according to internationally recognized rules.
NSE Vice Chairman Bob Karina said that the index will give investors reliable information of the performance of government bonds. “By looking at the general direction of the index, the industry will be able to know which position to take,” Karina said. He noted that additional indexes will be introduced in due course in order to encourage more retail investors to join the bond market. Karina said that currently most of the players in the bond markets are the insurance, banks and fund managers. The NSE official added that a well functioning and developed financial market will be a lubricant for the economy. (Xinhua)
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