Njuguna Ndung'u: Initiatives, developments and achievements of the
Kenya Government Securities Market
Remarks by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the launch of
the FTSE-NSE Kenya Government Bonds Index, Nairobi, 3 October 2012.
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The Chairman of the Nairobi Securities Exchange (NSE);
Chief Executive, NSE, Mr Peter Mwangi;
Officials of the FTSE Group;
Capital and Financial Market Executives;
Members of the Media;
Ladies and Gentlemen:
At the outset let me thank the Nairobi Securities Exchange Chief Executive for inviting me to
participate in this auspicious moment of the launch of the FTSE-NSE Kenya Government
Bonds Index. This achievement is indeed critical for the development of a robust domestic
financial market in Kenya. Today's event comes at a time when we as market players take
pride in the success of our efforts in spearheading market development. This collaboration
among market players has been instrumental in developing one of the fastest growing Bond
Markets in Africa as the Kenyan Bond Market is ranked among the top in Africa. Ladies and
Gentlemen: let me take a few minutes to make some remarks on the initiatives and
developments that have underlined the achievements of Kenya Government Securities
Market. Over the last one decade, the Central Bank of Kenya in liaison with stakeholders in
the financial sector has contributed significantly to the following successes:
1. Longer maturity profile of domestic debt instruments: average maturity profile of
government securities rose from 8 months or ratio of 76:24 in Treasury bills to
Bonds in June 2001 to 5 years 5 months or ratio 20:80 currently. With a
well-functioning secondary bond market in place, the Government no longer faces
rollover risks associated with short term debt instruments.
2. successful implementation of Treasury Bonds
Benchmark bonds implementation:
benchmarks and reopening to increase their liquidity since April 2009 was a critical
step towards addressing the Bond market fragmentation problem and in the
development of a reliable yield curve in our market. About 16 benchmark bonds
have so far been reopened bringing into the market more than Ksh.138 billion and
providing critical financing for the national recurrent and development budget as per
Government's fiscal policy.
3. Project-specific (infrastructure) bonds - The Government of Kenya took a bold
step in February 2009 to issue the first project/sector specific bond with an aim to
fund key infrastructure projects and set pace for public, private as well as
supranational agencies to tap the market for long term funding through bond
issuance. Five infrastructure bonds worth Ksh.130.85bn have so far been issued
thereby increasing the range of products in the market for purposes of
diversification.
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4. Creating more investment opportunities to spur national savings The
issuance of a 30-year Savings Development Bond in 2011 and the reduction of
minimum entry into Treasury bills market from Ksh.1,000,000 to Ksh.100,000 in
January 2009 were key milestones towards promoting a savings culture among the
populace and in widening the investor base for the Government Securities market.
5. - The introduction of the
Putting in place the Automated Trading System (ATS)
ATS at the NSE in November 2009 was a great step towards achieving bond trading
efficiency, effective pricing, increased market confidence and transparency as well
as enhanced reliability and firming of the yield curve.
Ladies and gentlemen, a well-developed and functioning financial market is regarded as the
lubricant for the economy. In order to further enhance the proper functioning of the financial
market, the Central Bank together with other market stakeholders has been working on a
number of initiatives to further enhance the bond market so as to support the country's
development agenda under Vision 2030. These reforms include:
•
Development of the Over The Counter trading platform,
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Introduction of online bidding for government securities,
•
Implementation of government securities market makers.
The step taken by the Nairobi Securities Exchange to introduce the FTSE NSE Government
Bond Index is a welcome initiative for this market as the index will play a key role in providing
a benchmark tool for measuring market performance. It will also facilitate diversification
through emergence of new financial products and market participants thereby encouraging
foreign investors. Finally, it will have the benefit of opening up the market to the rest of the
world and increasing Kenya's financial sector competitiveness in the region and across the
world. It surely does set the pace for the regional market. I wish therefore to congratulate the
Nairobi Securities Exchange for the foresight of developing the bond index.
With these remarks, ladies and gentlemen, I now declare the FTSE NSE Kenya Shilling
Government Bond Index formerly launched.
Thank you all for your listening