The share of the government’s domestic debt stock held by retail investors has nearly doubled to 12.42 percent from 6.96 percent in March last year, reducing that by banks, insurance companies, and pension funds.
Data by the Central Bank of Kenya (CBK) shows that individual investors have now overtaken insurance companies in the share of the government’s domestic debt held, making them the third largest buyers of government papers after banks and pension funds.
In March last year, retail investors held only Sh316 billion of the total Sh4.5 trillion domestic debt stock, but this has now more than doubled to Sh650 billion, which is 12.42 per cent of the total Sh5.2 billion local State borrowing currently.
This has seen the share held by institutional investors, including banks, insurance companies and pension funds --who have either held almost the same amount or slightly decreased it since last year -- slide.
Pension funds have recorded the highest slide in the period, with their combined portfolio in government bills and bonds dropping by 4.38 per cent from 33.69 per cent in March 2023, to 29.31 per cent this year, having maintained their portfolio in securities at Sh1.5 trillion.
Banks’ share has also dropped slightly over the last year, from 45.95 per cent to 45.89 per cent this year, meaning they have slightly increased their loans to the State from Sh2.3 trillion to Sh2.4 trillion.
Insurance funds, which previously held 7.36 per cent of government securities, now hold 7.11 per cent, increased slightly from Sh334 billion last year to Sh371 billion currently.
The share held by parastatals also declined from 6.04 per cent last year to 5.26 per cent currently, translating to an increase of only Sh1 billion in their investment in securities from last year’s Sh274 billion to Sh275 billion.
Over the period, the returns on government securities surged significantly, jumping from 10.75 per cent for the one-year paper to over 15.8 per cent currently, enticing more retail investors. The rise could have also been influenced by the launch of the CBK’s digital investor portal DhowCSD, which went live in July last year, allowing more retail investors to buy or sell government securities from anywhere in the world without the need for intermediaries.
This comes at a time when investors are looking for low-risk alternatives beyond the capital markets to pump their money. The Kenyan government has in recent months been giving investors some of the highest returns in over a decade after interest rates hit 18 per cent, making lending to the government one of the best investment options in the year.
CBK Governor Kamau Thugge has in the past two months been on an operation to put an end to aggressive interest rate bids from banks as part of efforts to keep the cost of domestic debt in check.
Higher interest rates were also an indicator that investors were placing a higher risk on the government, fearing for a default of the June Eurobond, which has since been partly settled.
The raising of Sh240.9 billion from the February infrastructure bond has also lowered pressure on the CBK to meet the domestic borrowing target, giving it the leeway to reject aggressive investor bids. The net domestic borrowing target is projected at Sh422.7 billion, as per the recently released 2024 Budget Policy Statement.
