Retail investors hold a larger share of government debt than insurance firms and parastatals combined, cementing their status as the fastest-growing class of domestic lenders to the State.
Data from the Central Bank of Kenya (CBK) shows that the retail investors held 12.52 percent of the State’s gross domestic debt of Sh5.26 trillion as at April 5, translating to actual lending of Sh658.32 billion.
Insurers and parastatals meanwhile held a combined 12.38 percent of the debt, making Sh650.96 billion. The underwriters hold 7.12 percent of the State debt while parastatals account for 5.26 percent.
Retail investors, who are classified as “others” in the government’s breakdown of its domestic lender groups, comprise individuals, saccos, religious and educational institutions, private companies and self-help groups.
Over a period of three years, they have grown from the smallest segment in lending to the government to leapfrog the parastatals and insurers into third place, behind commercial banks (45.76 percent/Sh2.41 trillion) and pension funds (29.33 percent/Sh1.54 trillion).
At the end of March 2021, the retail segment accounted for 5.47 percent of the total debt which stood at Sh3.57 trillion then, trailing parastatals’ holding of 5.61 percent and insurance companies’ 6.58 percent share.
Their rise has come with the jump in interest rates on government securities, which has coincided with falling or low returns from other asset classes such as equities and property.
A tough post-Covid economic environment also contributed to the flight by Kenyans to the guaranteed returns of fixed-income securities, given the difficulties businesses face in surviving and making profits.
Rising awareness
The rise in popularity of bonds also points to rising public awareness of the securities as an investment option, with the introduction of the CBK’s DhowCSD platform also making it easier for new investors to join the market.
Over the three-year period from March 2021, retailers have added Sh463.05 billion in their lending to the government, going from Sh195.27 billion to Sh658.32 billion.
Over the same period, lending by commercial banks has gone up by Sh553.7 billion to Sh2.4 trillion, while pension funds have increased their bond holdings by Sh455.6 billion to Sh1.54 trillion.
Insurance companies have raised their holdings of the securities by Sh139.5 billion to Sh374.4 billion while parastatals trail the rest with an increase of Sh76.3 billion to Sh276.6 billion.
High yields
Retail investors tend to invest for the returns the bonds generate, unlike the financial institutions focused on secondary market price and yield movements for reporting.
High yields mean falling prices on bonds already in hand, hitting banks and other institutions with fair value losses on their balance sheets.