CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
MARKET LEADERS FORUM COCKTAIL
Intercontinental Hotel, Nairobi
Friday, December 3, 2010

Members of the Market Leaders Forum,
Officials from the Treasury,
My Colleagues at the Central Bank,
Ladies and Gentlemen,
It is my great pleasure to be with you this evening. Allow me to make a few remarks on
the achievements of MLF this year. I will also briefly highlight the challenges we are
currently facing this Financial Year and propose the way forward for our financial
markets so as to achieve faster growth and stability:
Market Leaders Forum
Starting from 2003, the original Market Leaders Forum objectives were to lengthen
the tenor of government securities and to raise money to meet Treasury’s
requirements. Having pushed the tenor to 25 years and with the market ready to take
up even a 30 year bond, the first objective has been met. The second objective will
always remain but with improved fiscal policy it has become much easier to manage.
The Forum, therefore, needs to be restructured in terms of representation and it needs
to aim at influencing policy at stakeholders level so that we can consolidate the gains
for the betterment of Kenya. In short: the Forum needs a new mandate, new course,
and new players. We would like to brainstorm on this and parade/rank the options we
should start with to show quick results.
1. This occasion comes at the heels of a very successful FY 2009-10 with respect to
raising money for the government where annual target amount was achieved by
April 2010. By June 2010, CBK had raised 100.3 percent of target, ensuring stable
interest rates and introduction of new products that were well received by the
market. In FY 2010/11, 48 percent of the target Ksh.105.3bn has been raised so far.
2. Implementation of Benchmark Bonds Programme: Successful issuance of
benchmark Treasury Bonds and reopening as from April 2009 have been critical
steps towards addressing the Bond Market fragmentation problem and creating
liquidity necessary for development of a firm and reliable yield curve.
3. Extending the Yield Curve: To minimize rollover risks but at the same time
provide a benchmark for pricing long term capital, the Bank issued a 25-year bond,

the longest maturity in Africa, with the exception of South Africa. The paper issued
in June 2010 and reopened immediately thereafter, has been very active at the
secondary market.
4. Issuance of Infrastructure Bonds; Building on the success of the debut
Infrastructure Bond in February 2009, the Bank raised Ksh.32.9 billion in the FY
2009/10 and Ksh.30.6 billion in FY 2010/11 through Infrastructure Bonds to fund
key projects in Roads, Energy and Water Sectors. All the offers were
oversubscribed including the biggest one tranche Infrastructure Structure Bond of
Ksh.30.5 billion in August 2010. Consequently, corporate issuers like KenGen Ltd,
Safaricom, some commercial banks and mortgage firms have taken advantage of
the growing bond market to raise long term funds to finance their capital projects.
This is the road to realization of a deep and vibrant bond market.
i. Longer Maturity Profile of domestic debt - the average maturity profile of
domestic debt in government securities rose from 3 years 9 months in June
2009 to 4 years 7 months by June 2010 then to 5 years 1 month or ratio
23:77 in Bills and Bonds by November 2010. With a functioning secondary
bond market in place, the Government no longer faces rollover risks
associated with short term debt.
ii. Secondary market for bonds: With the adoption of the Automated Trading
System (ATS) in November 2009 and increased reopening of benchmark
bonds, turnover at NSE has risen from Ksh.107.85 billion in 2009 to
Ksh.443.50 billion just in the period January – November 2010. ATS
linkage between the NSE and CBK ensures simultaneous exchange of
securities and cash settlement using the KEPSS (RTGS) infrastructure on
DvP basis, ensuring efficiency of trading in terms of safety of transactions
and price discovery. The overall effect has been a firmed up yield curve,
oversubscriptions in primary auctions and declining bond yields due to
improved market confidence.
iii. Market-Makers framework: The Bank hosted a successful two-day
workshop for stakeholders in November 2010, in preparation for its
commencement expected within this Financial Year. This was to sensitize

stakeholders on the finalized Market Makers Operational Guidelines and
Code of Conduct for Market Makers in Government Securities (GSMM).
To summarise, where do we want to go now:
(a) The financial market is deep and vibrant as evidenced by the World Bank report
on ’Ease of Doing Business’ which has placed Kenya’s financial sector third in
Sub-Saharan Africa.
(b) MLF has already achieved one of its key objectives of lengthening of maturity
profiles of fixed income securities. The focus going forward, MLF is to be
reconstituted so as to be able to guide policy.
(c) Policy directions should be enhanced and revised now to guide market
behavior.
Marketing
The department seems to have gone slow on marketing the bonds. We need to address
the critical issue of popularizing and marketing Governmentt securities. But this also
calls for a new direction at both the CBK and the MLF. A well functioning National
Debt Office will go a long way to alleviating this, since it will be in constant touch with
the markets.
With these remarks, ladies and gentlemen, I wish you a pleasant evening and thank
you for coming.