Standard Chartered Bank Kenya has been given the task of buying and safekeeping government bonds and Treasury bills for international investors in a new deal with the Central Bank of Kenya (CBK).
The government’s fiscal agent signed an agreement with financial services firm Clearstream to open a domestic link to Kenya, allowing institutional investors to buy the country’s debt securities under a single master account.
Stanchart will be the link to the CBK, transacting on their behalf through the automated Dhow Central Securities Depository (DhowCSD).
The deal will see the Nairobi Securities Exchange-listed firm, which focuses on corporate banking and wealth management, earn substantial fees as the National Treasury seeks to deepen the base of investors buying the country’s debt instruments.
“The connection provides institutional investors with efficient access to the local market through a unique omnibus account structure, supporting Kenyan government bonds, infrastructure bonds and treasury bills,” Clearstream’s parent firm Deutsche Börse Group, said in a statement.
“Standard Chartered Kenya will serve as Clearstream’s cash correspondent bank for the Kenyan Shilling and local custodian with the Central Bank of Kenya.”
StanChart will act as intermediary for the foreign investors and their banks, handling roles such as currency conversion, payments, and purchase of securities.
The stock of Treasury bills and bonds has grown to Sh7 trillion and is set to rise further on the back of the government’s ever-growing spending.
Non-residents hold 4.2 percent of the debt, standing at nearly Sh300 billion as of mid-June. Kenyan banks, insurers, and pension funds hold most of the securities, with retail participation rising significantly following the introduction of the DhowCSD in 2023.
Foreign investors find it most attractive to buy sovereign debt issued by emerging and frontier markets like Kenya when interest rates offered are substantially higher compared to their domestic markets.
Kenya has also occasionally issued infrastructure bonds, which have the benefit of being exempt from withholding tax on interest earned, to attract both local and foreign investors.
“The Central Bank of Kenya welcomes the establishment of the Clearstream-Kenya Link, which is expected to provide efficient access by international investors to Kenyan Government securities, supported by the Dhow Central Securities Depository (DhowCSD). This is a significant milestone in developing Kenya’s financial markets,” said David Luusa, Director of Financial Markets at the CBK.
“The link is expected to deepen liquidity, broaden the investor base, and enhance the resilience of the domestic debt market. This development underscores our commitment to strengthening and modernising financial market infrastructure, fostering greater integration with the global financial system, and advancing Kenya’s position as one of the leading financial centers in Africa.”
Deutsche Börse said that Clearstream’s expansion to Kenya comes at a time when the country is attracting significant international investor interest, partly due to its position as a leading economic hub in East Africa and consistent economic growth.
“This momentum is further reinforced by Kenya’s expected inclusion in global market indices and underscores its rising prominence among international investors. The new link addresses this growing demand, enabling capital to flow more easily into one of the continent’s most promising markets,” the multinational said.
This is Clearstream’s 60th domestic market link, making it the only international central securities depository to offer access to Kenya.
It enables Clearstream’s clients to easily settle and safekeep Kenyan Government debt securities, use Kenyan debt instruments in collateral management facilities, and perform foreign exchange services for the Kenyan Shilling, all through a single point of access without any local registration or account opening processes.
For investors, the infrastructure helps them overcome the challenges of cross-border investing, besides increasing flexibility in responding to opportunities in different markets.
“The new link to Kenya is an important milestone as it follows Clearstream’s strategic aim to facilitate global investment and provide further access for our clients to attractive and growing markets,” Jan Willems, Head of Global Markets at Clearstream, said.
“We are delighted to partner with Standard Chartered and the Central Bank of Kenya to connect the Kenyan market to our global network.”
