Njuguna Ndung'u: Kenya's macroeconomic developments and key
financial sector reforms
Address by Prof Njuguna Ndung'u, Governor of the Central Bank of Kenya, at the Launch of
Suntra Investment Bank Unit Trusts, Nairobi, 7 April 2008.
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Mr. Nguru Wachira, Chairman of Suntra Investment Bank, Mr. James Murigu - Managing
Director, Distinguished Guests, Ladies and Gentlemen.
I feel honoured by your invitation to grace this important occasion because it is not only a
milestone to Suntra Investment Bank, but it is also a significant development in our capital
market.
Kenya's macroeconomic environment and future prospects
Ladies and Gentlemen, the Kenyan economy has grown steadily in the recent past with all
sectors registering expansion, and therefore creating more employment and investment
opportunities for many citizens. This growth has introduced new challenges to regulators
particularly in the financial sector. For effective monetary policy, you also require an active
and efficient financial sector.
To ensure that Kenyans reap the benefits of economic growth, Central Bank has pursued
deliberate policies that have achieved relatively stable and low underlying inflation, even with
supply shocks, the current inflation bout is related more to supply constraints rather than
monetary overhang, stable exchange rate even with some minor volatilities, a strong balance
of payments position, low and stable interest rates, and substantial inflows of both official
capital and foreign direct investment. It is noteworthy that since KenGen IPO was floated,
many Kenyans have a high appetite of investing in the stock market which has boosted
activity at the Nairobi Stock Exchange. KenGen IPO showed that investment opportunities
constraints the boost in investment. Unfortunately this growth has not come without
challenges ranging from payments, settlements, investors' returns to safety of investors'
assets to the stock exchange, brokers, Capital Markets Authority.
Despite these challenges it is gratifying to note the significant growth in the Fixed Income
segment of the Nairobi Stock Exchange and the vibrancy we have seen of the capital
markets in general. This has lengthened the maturity profile of the bond market. The Central
Bank of Kenya, in consultation with Market Leaders Forum successfully issued another
15-year Treasury bond thus enhancing the continued deepening of the local money and
capital markets. A sure way to assess long-term prospects and economic confidence in
future.
Ongoing key reforms to propel further growth and efficiency in financial markets
Financial sector is singled out as a key industry that would play a pivotal role in successful
implementation of the Vision 2030 through mobilization of long term financial resources. This
will make Nairobi a financial hub of the region.
The Central Bank of Kenya in collaboration with the Treasury and other stakeholders are
carrying out significant reforms to spearhead further growth and efficient functioning of the
financial markets. Some of these reforms relate to the introduction of an efficient trading
platform. The proposed phased introduction Primary Dealership will further deepen the
capital markets. The proposed reduction of the threshold for investment in Kenya
Government Treasury bills will undoubtedly pave way for wider public participation in
government debt markets as the Government starts implementing Vision 2030. Further, I
would like to commend the teams comprising of Central Bank of Kenya and the Nairobi Stock
Exchange that have been working to connect CBK's-CDS with the NSE's Automatic Trading
System(ATS) to facilitate online trading of bonds in the secondary market. If successfully
implemented, Delivery versus Payment arrangements will be greatly enhanced to the extent
that Over-The Counter (OTC) trading can effectively take place. The CBK and the Treasury
are also working on a Benchmark Bonds programme to be rolled out in the near future.
Investment banking in Kenya
We have witnessed a steady growth of investment banks in Kenya. Kenya now boasts of 12
investment banks, 19 investment advisors and 7 stockbrokers. Investment bankers and
brokerage firms play a critical role in contributing to the efficient functioning of securities and
equities markets in the economy. With the deluge of information available to market
participants today, the value of investment analysts' opinions - both to investors and issuers
- is greater than ever before. If we aspire to be the financial hub of the Region more
investment banks and other intermediary financial institutions (like discount houses) must
take firm root under the close supervision of the regulatory body.
Effective supervision will help prevent unprofessional activities by players by ensuring that
brokers, investment banks financial advisors among others, provide the appraisal, the
screening and the monitoring roles as required.
Suntra Investment Bank Unit Trusts
Let me now turn main reason that we have gathered here: The Suntra Investment Bank's
UNIT TRUST. Suntra Investment Bank (SIB) Ltd has been active in the Capital Market.
Distinguished Guests, we are here to celebrate with SIB Ltd as they continue to create value
in the country's Capital Markets by introducing new products. Suntra Unit Trusts are
packaged to benefit Kenyans on many levels by efficient risk management and guaranteed
positive return on assets. Unit Trusts go hand-in-hand with other traditional products they
have in stock. Unit Trusts provide a sure avenue for investor diversification. Perhaps this is
good to solve the supply side constraints of investment and also in small and manageable
units.
As approved / licensed Investment firms, Unit Trusts can facilitate / foster efficient liquidity
management during an IPO since they have the privilege of depositing funds (settling /
paying for shares) after allocations have been announced. This means that investors' money
will be held in the bank accounts of Unit Trusts and not concentrated with the receiving
banks. The entry of SIB in this line with the efficiency they promise is great indeed.
With these few remarks, Ladies and Gentlemen, it is my humble duty to officially declare
Suntra Investment Bank Unit Trusts launched.
Thank you for your kind attention.