Pension schemes overtake banks in lending to State

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Pension schemes overtook banks as the biggest buyers of government securities for the financial year ending June 2021.
The return-chasing pension funds grew their allocation of retirees’ savings in government debt by more than half.

Pension schemes overtook banks as the biggest buyers of government securities for the financial year ending June 2021 on the back of volatility in the stock market, which prompted investors to invest more in low-risk assets.

The return-chasing pension funds grew their allocation of retirees’ savings in government debt by more than half in a year the Treasury and Central Bank of Kenya (CBK) issued their preferred longer-dated bonds to reduce the refinancing risk for domestic debt.

Latest CBK data shows managers of retirement savings invested an additional Sh207.87 billion in Treasury bonds and bills in the review period, a 52.34 percent jump over the previous year, which lifted them above banks for the first time.

Banks, which controlled 51.26 percent of cumulative domestic debt in June 2021, invested Sh151.94 billion on a net basis in the period, a 33.57 percent drop over the previous year. Pension funds accounted for 30.6 percent of the total debt in June.

The maturity profile for bonds has risen to about 8.6 years from 4.1 years in June 2018, easing pressure on short-term domestic debt refinancing needs at a time obligations are forecast to rise 8.45 percent to Sh707.84 billion this fiscal year. “The ratio of T-bills to bonds at the time was 34 percent T-bills and 66 percent bonds. This has been improved to 21 percent in T-bills and 79 bonds,” said CBK governor Patrick Njoroge last month.

Pension funds are usually the biggest investors in long-term government bonds, given the need for assured, stable returns in the long-term for the payment of retirees.

The retirement funds accounted for 40 percent of the Sh519.63 billion fresh debt that the CBK — the government’s fiscal agent— procured from domestic investors in the 12-months to June 2021.

That was bigger than the 29.24 percent share coming from banks, with insurance firms (10.39 percent or Sh53.99 billion), parastatals (4.38 percent or Sh22.75 billion) and other investors (15.99 percent or Sh83.08 billion) making up the remainder of the new gross debt in the review period.