CBK seeks to lower requirements for Bonds

The Central Bank of Kenya (CBK) has recommended a reduction in the minimum amount required to invest in fixed income securities.

Governor Njuguna Ndung’u said lower threshold of bids would attract more participants and make the bond market an investment/savings vehicle. Retailing in bonds is an expensive undertaking for many potential investors.

To invest in Corporate and Treasury Bonds, one requires at least Sh100,000 and Sh50,000.

"We need to lower threshold so as to allow small savers multiply their money through this kind of market," Ndung’u told participants at the Infrastructure bond’s conference on Tuesday.

Ndung’u said lower threshold would stimulate activity in the bond markets, which is still underdeveloped.

"Secondary market for bonds is still rudimentary thus compromising the instruments’ liquidity," Mr Joseph Kinyua, Finance Ministry Permanent Secretary said.

Official data from the Nairobi stock Exchange (NSE) shows there are nine Corporate Bonds and 70 Treasury Bonds listed on the bourse, which compare unfavourably with 54 equities.

The listed corporate bonds include East African Development Bank (Sh1.5 billion), Faulu (K) Ltd (500 million), PTA Bank (Sh1.6 billion), Athi River Mining (Sh800 million) and Barclays Bank (Sh1 billion).

Institutional investors who include banks and insurance companies account for about 95.41 per cent of the total corporate bondholding, whereas individuals account for a paltry 4.6 per cent. "I think that proposal is timely and welcome. It should be pushed to its logical conclusion because it will deepen the bond market by bring more players on board,"said Charles Ocholla, the Head Investment Banking and Fund Management at Suntra Investment Bank. Mr Ocholla also proposed the introduction of the Retail Savings Bond targeting the small and individual investors. The corporate bonds market has had a lower trading activity compared to the Treasury Bond market. The market’s growth has been hindered by issues such as information asymmetry.