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November 16, 2018

Failed corporate bonds edge out investors, fund managers

Capital Market Authority chief executive officer Paul Muthaura during a media briefing on the Capital Market soundness report in Nairobi on August 2, 2017 /ENOS TECHE
Capital Market Authority chief executive officer Paul Muthaura during a media briefing on the Capital Market soundness report in Nairobi on August 2, 2017 /ENOS TECHE

Fund managers will shun away from investing in corporate bonds in relation to suspensions by the Capital market authority on trading of failing banks.

The market regulator suspended Sh10 billion worth of corporate bonds in 2016 on National Stock Exchange after the bank had listed the bonds to raise cash.

Zamara Fanaka Retirement Fund Chair Lucy Kambuni has said the trend would make investors become cautious of buying corporate bonds especially from banking institutions.

Kambuni has also disclosed that the pension scheme had taken a write off on its bond with the Chase Bank.

“Trustees need to be engaged better and strict regulations by the Central Bank of Kenya to reimburse returns to investors in the event of defaults or bank closure,” Kambuni said.

Chase bank has since been acquired by SBM Group Bank in August 20 after the state-owned Mauritius bank reached a deal with CBK and the Kenya Deposit Insurance Corporation (KDIC) last April to formally take over assets and liabilities of Chase Bank that are in the good books.

The troubled lender had been placed under from receivership by the CBK after it had collapsed in April 7 2016 due to failure to pay customers deposits.

SBM acquired 75 per cent of the value of deposits, with a recapitalization of Sh6.05 billion moving the bank from Tier 3 to Tier 2 bank in with Chase bank retaining the remaining 25 per cent.

“It is really unfair for the bank to buy goods assets and leave off the bad assets,” Kambuni said.

The Capital Markets Authority says some of the key investment managers lost Sh4.8 billion and accrued interest last year alone over the suspension of Chase Bank.

Kambuni has said Fund Management Association has sued SBM to recover their expenses now that the Mauritius bank has taken over the troubled bank.

Imperial bank had also offered Sh2 billion but was also suspended after the bank ws put under receivership.

“How the two banks were handled will have impact henceforth on the how other institutions and individuals invest with the banking institutions,” CEO James Olubayi said.

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