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Top banks record Sh58.2bn gains on rebound in bond prices
The nine major lenders– Equity, KCB, Co-operative, NCBA, Standard Chartered, Absa, Stanbic, I&M and DTB – had previously recorded Sh36.9 billion in impairments on bonds held for trading in 2023 as interest rates rose.
Kenya’s top listed banks recorded Sh58.2 billion in paper gains from government papers held for trading purposes at the end of December 2024, as the price of State bonds in the secondary market recovered on falling interest rates.
The nine major lenders– Equity, KCB, Co-operative, NCBA, Standard Chartered, Absa, Stanbic, I&M and DTB – had previously recorded Sh36.9 billion in impairments on bonds held for trading in 2023 as interest rates rose.
Equity Bank Kenya had the largest write-back at Sh15.7 billion based on its sizable holding of government securities held for trading at Sh271.1 billion.
Fair value gains or losses on the securities held for sale are usually exempted from banks' profit and loss accounts as the paper gain or loss is only realised when the instrument is sold. Fair value gains refer to the increase in value of an asset or liability measured at its current market price.
Bond prices and interest rates or yields tend to move inversely, with a fall in yields usually followed by a rise in prices.
Yields on government securities in both the primary and secondary markets began falling in the second half of 2024 as the Central Bank of Kenya (CBK) cut its benchmark rate from a high of 13 percent.
The trend of falling yields turned investors to previously issued securities as they offered relatively higher returns to future issuances.
The expectation of lower returns on future Treasury bonds increased the demand for previously issued securities, leading to higher bond prices in secondary trading.
One infrastructure bond, first issued in February 2024 with a yield of 18.46 percent, has been a darling of investors as it offers the highest yield available in the government bond market.
The paper’s price has risen to a premium of Sh123.0425 per unit on Wednesday trading last week.
This implies that a bank holding the paper with an initial value of Sh1 billion could make Sh1.23 billion from disposing of the bond, requiring it to adjust the fair value of the security held for trading to reflect the profit potential on its balance sheet.
Top banks increased their share of government securities by 13.6 percent to Sh926.9 billion from Sh815.9 billion in 2023 amid the recovery in bond prices.
However, government securities held to maturity increased marginally to Sh471.5 billion from Sh467.5 billion.
Standard Chartered Bank Kenya continued its run of zero balances in government securities held to maturity, while Co-op Bank held the largest balance of bonds held to term at Sh105.9 billion.
