Kenya US$25m repo transaction breaks new ground

Commercial Bank of Africa (CBA) and Standard Bank of Southern Africa (SBSA) have executed a US$25m cross-currency repo transaction. Development finance company Frontclear, which facilitated and guaranteed the deal, described it as a “first of its kind transaction [which] paves the way to a more robust, stable and inclusive interbank market in Kenya”.

In the transaction, executed last month, CBA received US$25m in one-year funding from SBSA and provided Government of Kenya Bonds as collateral.

The transaction was executed under a standard International Swaps and Derivatives Association (ISDA) agreement between the two counterparties and assumes transfer of legal ownership of the collateral instruments.

Frontclear said that this is a step-up from the Kenyan ‘horizontal repo’, which is based on a pledge of a security and does not furnish the same comfort with regard to mitigating credit risk nor does it ensure the wider benefits of a liquid repo market. Frontclear has issued a guarantee to SBSA to cover any residual credit risk on the transaction.

The company added that the transaction is the first of its kind executed in East Africa and reflects Frontclear’s development impact rationale: catalysing transactions that move markets forward. “True repo structures make interbank markets more liquid and inclusive and enable all participating banks to have expanded access and in turn allow them to better serve the needs of their client base,” it added.

Frontclear also said that the transaction would not have been possible without the guidance and commitment of the Central Bank of Kenya (CBK), the Kenyan Capital Markets Authority (CMA) and Nairobi Stock Exchange (NSE).

We see this type of transaction as key to developing deep and liquid financial markets in Kenya and across Africa as a whole,” commented Reggie Mlangeni, regional head East Africa, client solutions at Standard Bank.

Raphael Agung, head of treasury at CBA, added: “This repo transaction has allowed us to term out our funding by a considerable magnitude thereby infusing the much needed stability to our balance sheet.”

Philip Buyskes, chief executive officer (CEO) of Frontclear, said that the company looked forward to further work with the region’s regulatory authorities in building “a robust settlement procedure for repo transactions based on full title transfer.”


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