Equity Group Postpones Green and Social Bond Sales Amid High Intrest Rates
Due to relatively high borrowing costs, Kenya’s largest bank by market capitalization has suspended plans to issue its first green bond in Kenya and a social bond in the Democratic Republic of the Congo.
Equity Group Holdings Plc has been collaborating with the International Finance Corp. to sell the bonds by 2025, but “obstinately high-interest rates” offered by the Kenyan government are suppressing demand for private-sector debt, according to Equity Group Holdings Plc’s chief executive, James Mwangi.
In the past 15 months, the Central Bank of Kenya has increased its benchmark interest rate by 350 basis points, while monetary policy authorities in Congo last week more than doubled the key interest rate to 25%.
In an interview in the capital city of Nairobi, Mwangi said of Kenyan securities, “We have been constrained by the macroeconomic environment, which has forced us to put this on hold due to the high-interest rates offered by the government.” Because people will be forced to mark-to-market, we cannot effectively issue a bond that undermines the current interest regimes.
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A coupon rate of 16.8 percent for a five-year Kenyan Treasury bond makes it difficult for borrowers to compete.
To secure attractive returns, the equity market, which had begun to reduce its investment in government securities, reversed course and increased purchases by 33 percent.
The fluctuation of the Libor rate will also impede funding. According to Nairobi-based Sterling Research, Equity’s US currency funding costs increased to 10.5% from 4.5% over the past year, as nearly half of its loan portfolio is funded in dollars.
In the next six to twelve months, Equity’s director of financial and regulatory reporting, Mary Nteere, foresees high inflation and low disposable income in its six African markets, where the bank is headquartered in Nairobi.
She stated that equity’s cost of risk, the proportion of money associated with risk management, will be between 1.9% and 2.5%. In the first half, the ratio of nonperforming loans increased to 9.8%, and the lender increased its bad loan coverage by 73%.
In light of this, we’d like to maintain a high cost of risk to maintain coverage, Nteere informed investors.
Equity Group Postpones Green and Social Bond Sales Amid High Intrest Rates