NSE bond turnover up slightly amid rate cap uncertainty

The turnover of the bonds secondary market at the Nairobi Securities Exchange (NSE) rose slightly in September compared to August, but remained lower than the highs seen earlier in the year as jitters on the interest rate cap law suppressed trading.

The turnover stood at Sh46.1 billion last month compared to Sh41.2 billion in August, an upward change of 1.2 percent with commercial banks lowering their participation in the market.

The recent resolution of the rate cap matter is however expected to normalise trading going forward.

August and September saw the lowest levels of bond trading on the NSE this year even though performance in the primary market remained quite robust with the Treasury able to raise tens of billions of shillings through the auction.

“Investors have been uneasy because there was uncertainty as to which direction the interest rate cap law would go. So commercial banks were not participating as much as previously and that is why trading is still not as high,” said Mercyline Gatebi-Kyalo, head of research at Nairobi-based brokerage house Kingdom Securities.

The Treasury had suggested that the cap be removed to allow banks to charge market-determined interest rates, but MPs decided against the proposal arguing that this would lead to higher cost of money. A year ago, the floor on the interest rate paid for deposits was removed to allow financial institutions to negotiate with their clients on what to pay.

“People wanted to see whether there would a change in the law. Now that we are not expecting a repeal of the law we expect people to come back to normal trading. But we also expect banks will want to lend more to the private sector and participate less in the secondary market trading of government securities,” said Ms Gatebi-Kyalo.