Editorials

End bonds redress standoff

cma

Capital Markets Authority CEO Wycliffe Shamiah. FILE PHOTO | NMG

Summary

  • The Capital Markets Authority (CMA) and the Kenya Deposit Insurance Corporation (KDIC) have been in talks for over two years to have cash invested in banks by fund managers separated from customer deposits and other bank liabilities.
  • The proposed policy holds the key to allowing investors in corporate bonds such as pension schemes to be paid when a bank collapses since their funds will not be spent on compensating depositors.

The stalemate over a proposed compensation policy for bondholders in the event of bank failure should be unlocked to revive the corporate bond market.

The Capital Markets Authority (CMA) and the Kenya Deposit Insurance Corporation (KDIC) have been in talks for over two years to have cash invested in banks by fund managers separated from customer deposits and other bank liabilities.

The proposed policy holds the key to allowing investors in corporate bonds such as pension schemes to be paid when a bank collapses since their funds will not be spent on compensating depositors.

The CMA and the KDIC must now agree on timelines for actualising this to inject confidence in the corporate bond market.

Activity in the corporate bond market in the years leading to 2015 was active but has experienced drought after bondholders were left out of compensation plans when Chase and Imperial bank collapsed.

Sound regulations for compensating investors hold the key in returning vibrancy in the corporate bond market where outstanding bonds have fallen to Sh19.1 billion from Sh61.9 billion at the end of 2018.