Mr Bob Karina, Faida Investment Bank managing director. PHOTO | FILE
What you need to know:
Established lenders will likely favour taking control of trade to pocket commissions that would otherwise go to intermediaries.
The introduction of the authorised securities dealer licence by the Capital Markets Authority (CMA) in 2015 will define this year as banks bypass brokers when selling or buying bonds.
Chase Bank, which also has an investment bank subsidiary Genghis Capital, was the first to acquire the licence in June allowing it to buy and sell specific securities on a continuous basis as well as originate securities which it can then buy or sell to investors.
Eight other banks— KCB, Equity, NIC, CfC Stanbic, ABC Bank, Cooperative Bank, Barclays and Commercial Bank of Africa—also have investment banking subsidiaries, in a market that has a total of 42 banks.
“Allowing commercial banks to buy and sell the securities without any intermediaries will definitely deprive us of business. But the market will also be denied the ability to get the best prices for the securities on the basis of supply and demand,” said Faida Investment Bank managing director Bob Karina.
Data from Central Bank of Kenya shows that banks hold Sh848 billion in government debt— representing 55.7 per cent of the Sh1.521 trillion total.
Further, banks are among the most active buyers of corporate bonds, a number of which were issued by the lenders themselves in the past two years to maintain capital ratios.
Taking control of the trades they generate in the bonds market has therefore been seen as a sound option, especially given that 97 per cent of all bond trades at the Nairobi Securities Exchange (NSE) are on Treasury bonds.
Stockbrokers earn a commission of 0.035 per cent per bond transaction, be it a buy or a sell.
In 2014, stockbrokers collectively pulled in Sh354 million in commissions from the Sh506.1 billion bond turnover at the NSE. The income for this year is expected to fall because of lower bond turnover that stood at Sh194.3 billion by end of November.
Bond trades are concentrated among a few big players in the market, with Kestrel capital, SBG Securities, Faida Investment Bank, Genghis Capital and Dyer & Blair and Standard Investment Bank accounting for 75 per cent of total trades.
In the past brokers have resisted any move to let banks sell bonds directly in the secondary market since it would deny them commissions.
They are now reacting by opening up a new round of talent wars as each tries to secure top notch dealers who due to the relationship-based nature of investment banking are increasingly the difference between boom and bust.
The impact became apparent in July after Faida Investment Bank poached the trading duo of Norris Kibe and Gibson Gichaga from Dyer & Blair.
Dyer’s market share in bonds trading was effectively wiped out in the second half of the year as a result, while Faida is now commanding up to 12 per cent of monthly trades, up from less than five per cent before the move.
Kestrel has also jumped up the queue to take top spot in volume of bond trades this year from Dyer which led in 2014.
Kestrel hired the fixed income duo of Alex Muiruri and Mathangani Kariuki from competitor African Alliance last year, and has seen its market share rise from 20 per cent to 23.5 per cent between 2014 and 2015.
The market can expect more movement in the coming year, both from the stockbrokers seeking a piece of the bonds pie and those looking to replace lost talent.
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