Retail investors raise domestic debt stake

National Treasury building. FILE PHOTO | NMG

By ELIZABETH KIVUVA
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Summary

• The proportion of government’s domestic debt in the hands of individuals and private firms has increased by 30.2 percent or Sh37.6 billion in the last nine months, at a time when bank deposit rates have come down and returns elsewhere stagnated.
• These investors, who are classified as “other” by the Central Bank of Kenya (CBK), comprise individuals, Saccos, listed and private companies, self-help groups, educational and religious institutions.

The proportion of government’s domestic debt in the hands of individuals and private firms has increased by 30.2 percent or Sh37.6 billion in the last nine months, at a time when bank deposit rates have come down and returns elsewhere stagnated.

These investors, who are classified as “other” by the Central Bank of Kenya (CBK), comprise individuals, Saccos, listed and private companies, self-help groups, educational and religious institutions.

They now hold 4.68 percent (Sh161.9 billion) of the total domestic debt, which stood at Sh3.46 trillion at the end of September.

At the beginning of the year, they accounted for 4.23 percent or Sh124.3 billion, out of the total debt which stood at Sh2.94 trillion at the time.

Sterling Capital head of research Renaldo D'Souza said the rising interest in government securities by retail investors is informed by their pursuit of guaranteed returns.

The lower returns from assets such as stocks and property during the Covid-19 pandemic period has turned investors towards government securities, which are still offering double digit returns for longer dated papers.

“The main reason for this is flow of capital from the underperforming equities market with retail investors looking for more predictable returns even with low interest rates,” D'Souza said.

“We also take note of relatively high market liquidity, some of it flowing through the retail customer segment during the period which had a similar effect on the domestic debt holdings.”

The debt held by these “other” investors has grown faster than that held by banks, pension funds, parastatals and insurance firms.

Banks and pension funds are the largest local lenders to the government, holding 54.06 percent (Sh1.899 trillion) and 28.6 percent (Sh993.7 billion) of domestic debt respectively.

Insurance firms and parastatals account for 6.17 percent (Sh213.3 billion) and 5.44 percent(Sh188 billion) respectively.

Banks, insurance companies and pension funds have seen their debt holdings grow by 19.6 percent, 11.8 per cent and 18.5 per cent respectively this year.

Parastatals have on the other hand reduced their holdings by 3.9 percent since January following a directive by Treasury Secretary Ukur Yatani in November to surrender surplus cash, including that held in the form of bonds.