The capital market recorded mixed performance in both equities and bonds market segments in the year to September 2016, th National Treasury’s quarterly economic and budgetary review shows.
Activities at the stock market slowed down with the Nairobi Securities Exchange (NSE) 20 share index recording 3,243 points in September 2016 compared to 4,174 points in September 2015.
“Market capitalisation was at Ksh 1,959 billion in September 2016 compared to Ksh 2,046 billion in September 2015. The drop in market capitalisation is as a result of an increase in share supply which depressed the overall share prices,” the review says.
It says there has been a gradual recovery of the NSE reflecting restoration of market stability and improved confidence in the economy.
The NSE index had been weighed down by the prolonged uncertainty in the global financial markets, and capital outflows from emerging and frontier market economies, adds the review.
It notes the assent of the Banking Amendment Bill, 2015 on capping lending rates at no more than four per cent above the Central Bank Rate (CBR) into law, initially led to share prices of some banking institutions declining as investors sold off.
However, the effect was temporary and the review says the low interest rates were bound to have a positive impact on credit flow to the private sectors creating more investment opportunities.
The new law provides for capping of interest rates that are applicable to banks’ loans at 4.0 per cent above the base rate (currently at 10.0 per cent) and sets the minimum interest to be paid for a saving product at 70 per cent of the same base rate.
Before its enactment, the average lending rates increased to 17.7 per cent in August 2016 from 15.7 per cent in August 2015 but declined to 14.0 per cent with effect from September 14, 2016.
On the other hand, the deposit rate decreased to 6.4 per cent in August 2016 from 6.9 per cent in August 2015 but increased to 7.0 per cent by September 14, 2016 following assent to the Banking (Amendment) Bill, 2015 on the capping of interest rates. Consequently, interest rate narrowed from 11.3 per cent in August 2016 to 7.0 per cent by September 14, 2016.