CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
MARKET LEADERS FORUM DINNER
Crowne Plaza Hotel
Wednesday, August 6, 2013

Members of the Market Leaders Forum,
Officials from the Treasury,
Colleagues at the Central Bank of Kenya,
Ladies and Gentlemen,
Let me take the opportunity to welcome you all to this event which has been
organized to take stock of our achievements for the year, review challenges
encountered and develop the plans for the future. At the outset I wish to commend
the market leaders for the effort and success in taking this market to a higher level. As
you may be aware, Kenya’s bond market is now regarded among the top and fastest
growing in Africa and this could not have been without the strong partnerships that we
have continuously cultivated. We are however still a long way to achieve liquidity,
market efficiency and stability.
The 2012-13 financial year was a great success with respect to raising the borrowing
requirement for the Government. The Market Leaders Forum together with market
stakeholders contributed significantly to the success of the bond market in terms of the
following:
1. Successful financing of the FY 2012-13 Borrowing Plan: Treasury’s target for the
year was successfully achieved reflecting a sterling performance especially given
that this was the highest in the history of domestic borrowing at Kes. 165bn.
2. Benchmark Bonds Program Implementation: Successful implementation of this
program during the year was critical for addressing bond market fragmentation
and increasing liquidity in the market. All 17 bonds valued at Kes 209.8bn issued
in the year were benchmark tenors, out of which 5, worth Kes 5.4bn were issued
through reopen auctions. Overall, 16 benchmark bonds have been reopened
since 2009 when the strategy was first employed, bringing into the market more
than Kes. 183 billion and providing critical financing for the country’s fiscal gaps.

3. Longer Maturity Profile of Domestic Debt: Average maturity profile of
government bonds in the debt portfolio rose to 7.3 years by end June 2013
compared to 6.2 years at the beginning of the year. These are encouraging
outcomes given that in 2001, the average maturity of all government securities
was about 8 months. This is indeed a reflection of the continued success in
reducing rollover risk associated with short term debt which is essential for a wellfunctioning secondary market for bonds.
4. Global recognition for Kenya: Infrastructure Bond program and the plan by the
government to issue a Euro bond in the current financial year also signifies that
the domestic market has matured over time and gained confidence from both
local and foreign investors. This is evidenced by the stable country’s credit rating
and an attractive environment for investors.
5. Automation of primary market processes: In an effort to enhance efficiency and
safety of its operations, the Central Bank launched the T-24 system in all its
operations in April 2012. I would like to thank the stakeholders for being patient
while the bank was experiencing challenges leading to the implementation of the
new system. Going forward the bank is working towards providing internet
banking which will allow for services such as: online bidding faster dissemination
of auction results and statements for government securities.
6. Competitiveness at auctions: The use of an auction-based method in the
issuance of government securities over the years has promoted price discovery
and competitive prices at the primary market which is a key ingredient for the
secondary market.
7. Kenya Government Bond Index: In October 2012, the Nairobi Securities
Exchange (NSE) launched the FTSE NSE Kenya Shilling Government Bond
Index as a benchmark tool for measuring market performance. This was a great
step in market development because the market now has the benefit of further
opening up to the rest of the world and increasing Kenya’s financial sector
competitiveness.

Ladies and Gentlemen, as you all know our success has not been without
challenges along the way. Just to mention a few, the slow pace of reforms particularly
in the secondary market has promoted market illiquidity and hampered faster growth.
But above all, economic vibrancy has been constrained by shocks in both the
domestic and international environment beyond our control and this has at times
affected the momentum of our market development.
I wish to emphasize that a well-developed and proper functioning financial market is
critical to economies all over the world as it enhances effectiveness of monetary
policy, cushions the economy against external vulnerabilities while mobilizing long
term financing for public and private sector development. Therefore, the development
of a robust financial market is not only a priority of the Central Bank of Kenya but for
every stakeholder in this market to embrace.
Towards this objective I urge all the stakeholders to continue to build a competitive
bond market that supports the country’s development agenda under Vision 2030. In
cognizance with today’s theme of ‘Taking Kenya’s bond market to the next level’, we
as stakeholders have set for ourselves a number of initiatives which are ongoing or for
the future. These include:
1. Further support to the benchmark bonds program through strategies for building
liquidity such as bond reopening, and initiating approaches to smoothen the debt
maturity structure such as bond exchanges through switches and conversions.
2. Promoting financial literacy to ensure market confidence and increased numbers
of investors, so as to enhance further market deepening.
3. Fast-tracking financial markets reforms particularly at the secondary market
including diversification of existing products, improving the legal and operational
framework and expanding the trading platform to incorporate Over the Counter
trading. But we also need to review and develop mechanisms to reduce insider
activities and fraud so as to mitigate these risks and increase the integrity of our
financial markets.

4. At the primary market level, enhancement of products that will include; the
issuance of project specific infrastructure bonds with bond service costs matched
with income streams from the projects as well as more products to promote
national savings and attract small investors and the Kenyan diaspora.
As I conclude, I wish to thank the Market Leaders Forum for its invaluable
contribution towards market development and at the same time call upon all the
stakeholders to take up the challenge of enhancing market efficiency and
transparency.
With these remarks, ladies and gentlemen, I invite all of you to relax and enjoy the
rest of the evening.
Thank you for your attention.