| {"doc_id": "0b430f026fedbca120d883b3578a65cf", "text": "CENTRAL BANK OF KENYA\nRemarks by\nPROF. NJUGUNA NDUNG’U\nGOVERNOR\nCCEENNTTRRAALL BBAANNKK OOFF KKEENNYYAA\naatt tthhee\nMARKET LEADERS FORUM COCKTAIL\nIntercontinental Hotel, Nairobi\nFriday, December 3, 2010\n\nMembers of the Market Leaders Forum,\nOfficials from the Treasury,\nMy Colleagues at the Central Bank,\nLadies and Gentlemen,\nIt is my great pleasure to be with you this evening. Allow me to make a few remarks on\nthe achievements of MLF this year. I will also briefly highlight the challenges we are\ncurrently facing this Financial Year and propose the way forward for our financial\nmarkets so as to achieve faster growth and stability:\nMarket Leaders Forum\nStarting from 2003, the original Market Leaders Forum objectives were to lengthen\nthe tenor of government securities and to raise money to meet Treasury’s\nrequirements. Having pushed the tenor to 25 years and with the market ready to take\nup even a 30 year bond, the first objective has been met. The second objective will\nalways remain but with improved fiscal policy it has become much easier to manage.\nThe Forum, therefore, needs to be restructured in terms of representation and it needs\nto aim at influencing policy at stakeholders level so that we can consolidate the gains\nfor the betterment of Kenya. In short: the Forum needs a new mandate, new course,\nand new players. We would like to brainstorm on this and parade/rank the options we\nshould start with to show quick results.\n1. This occasion comes at the heels of a very successful FY 2009-10 with respect to\nraising money for the government where annual target amount was achieved by\nApril 2010. By June 2010, CBK had raised 100.3 percent of target, ensuring stable\ninterest rates and introduction of new products that were well received by the\nmarket. In FY 2010/11, 48 percent of the target Ksh.105.3bn has been raised so far.\n2. Implementation of Benchmark Bonds Programme: Successful issuance of\nbenchmark Treasury Bonds and reopening as from April 2009 have been critical\nsteps towards addressing the Bond Market fragmentation problem and creating\nliquidity necessary for development of a firm and reliable yield curve.\n3. Extending the Yield Curve: To minimize rollover risks but at the same time\nprovide a benchmark for pricing long term capital, the Bank issued a 25-year bond,\n2\n\nthe longest maturity in Africa, with the exception of South Africa. The paper issued\nin June 2010 and reopened immediately thereafter, has been very active at the\nsecondary market.\n4. Issuance of Infrastructure Bonds; Building on the success of the debut\nInfrastructure Bond in February 2009, the Bank raised Ksh.32.9 billion in the FY\n2009/10 and Ksh.30.6 billion in FY 2010/11 through Infrastructure Bonds to fund\nkey projects in Roads, Energy and Water Sectors. All the offers were\noversubscribed including the biggest one tranche Infrastructure Structure Bond of\nKsh.30.5 billion in August 2010. Consequently, corporate issuers like KenGen Ltd,\nSafaricom, some commercial banks and mortgage firms have taken advantage of\nthe growing bond market to raise long term funds to finance their capital projects.\nThis is the road to realization of a deep and vibrant bond market.\ni. Longer Maturity Profile of domestic debt - the average maturity profile of\ndomestic debt in government securities rose from 3 years 9 months in June\n2009 to 4 years 7 months by June 2010 then to 5 years 1 month or ratio\n23:77 in Bills and Bonds by November 2010. With a functioning secondary\nbond market in place, the Government no longer faces rollover risks\nassociated with short term debt.\nii. Secondary market for bonds: With the adoption of the Automated Trading\nSystem (ATS) in November 2009 and increased reopening of benchmark\nbonds, turnover at NSE has risen from Ksh.107.85 billion in 2009 to\nKsh.443.50 billion just in the period January – November 2010. ATS\nlinkage between the NSE and CBK ensures simultaneous exchange of\nsecurities and cash settlement using the KEPSS (RTGS) infrastructure on\nDvP basis, ensuring efficiency of trading in terms of safety of transactions\nand price discovery. The overall effect has been a firmed up yield curve,\noversubscriptions in primary auctions and declining bond yields due to\nimproved market confidence.\niii. Market-Makers framework: The Bank hosted a successful two-day\nworkshop for stakeholders in November 2010, in preparation for its\ncommencement expected within this Financial Year. This was to sensitize\n3\n\nstakeholders on the finalized Market Makers Operational Guidelines and\nCode of Conduct for Market Makers in Government Securities (GSMM).\nTo summarise, where do we want to go now:\n(a) The financial market is deep and vibrant as evidenced by the World Bank report\non ’Ease of Doing Business’ which has placed Kenya’s financial sector third in\nSub-Saharan Africa.\n(b) MLF has already achieved one of its key objectives of lengthening of maturity\nprofiles of fixed income securities. The focus going forward, MLF is to be\nreconstituted so as to be able to guide policy.\n(c) Policy directions should be enhanced and revised now to guide market\nbehavior.\nMarketing\nThe department seems to have gone slow on marketing the bonds. We need to address\nthe critical issue of popularizing and marketing Governmentt securities. But this also\ncalls for a new direction at both the CBK and the MLF. A well functioning National\nDebt Office will go a long way to alleviating this, since it will be in constant touch with\nthe markets.\nWith these remarks, ladies and gentlemen, I wish you a pleasant evening and thank\nyou for coming.\n4", "source": "CBK", "stratum": "cb_requests", "fetch_date": "2026-04-26", "url": "https://www.centralbank.go.ke//images/docs/speeches/2010/Market%20Leaders%20Forum%20Cocktail%20December.pdf"} |