Thursday, November 05, 2009

CBK Profits II


Reading the tea leaves at Central Bank

The Central Bank of Kenya (CBK) FY 2009 (PDF) results are out and, compared to last year, it’s a different story.

Banking on other Income: CBK is another institution that has had other income yield great returns. While net interest income was down from 10.3 to 8.4 billion, and commission income on treasury bills and bonds was flat at 3 billion (investors opting for corporate bonds), CBK booked a forex gain of 13 billion ($173 mullion) up from 54 million on revaluation (a 25,000% gain) and 4.8 billion from the controversial $45 million sale of the Grand Regency Hotel. So profit for the year was 23 billion ($306 million), up from 9 billion in the year before, and CBK paid a dividend of 7.2 billion ($96 million) to the Government of Kenya (GoK) (up from 4 billion). And while CBK is exempt from income tax, KRA (the tax man) is not letting go of a Kshs. 22 million employee tax dispute with the CBK.

Make it Rain: Kenya has Kshs. 108 billion (~1.4 billion) worth of currency in circulation (up from 100 billion in ‘08). Currency costs (sourced from De La Rue) were 1.1 billion (~15 million) to produce new notes (up from 330 m).

Generous Creditor: CBK lends to employees at 3% (perks of banking) and charge the government 3% on their overdraft. In a July 07 agreement GoK agreed to pay CBK 1.11 billion p.a. over 32 years at 3% to settle a GoK overdraft dating back to 1997. The CBK act limits the GoK overdraft to 5% of gross recurrent revenue (so currently this should not exceed 17 billion)

UK assets: CBK has 194 billion in assets held with united kingdom banks, that’s even more than Kenya (66 billion), or the rest of Europe (31), and USA (20) while all their 312 billion liabilities are in Kenya. This was even after they increased euro and dollar assets, and reduced sterling pounds, compared to '08.

Loans & Rates: CBK loans to commercial banks stood at 15 billion ($200 million), up from 8.5 billion. They lent money to commercial banks at 8% p.a and earned 6.64% on treasury bills/bonds.

No Gold Standard: CBK gold holdings are just 34 million (less than $500,000) up from 28m year before. In comparison, just this week, India pipped China in the gold race buying $6.7 billion worth of gold from the IMF in hard currency (but is still only 10th largest holder)

14 comments:

coldtusker said...

- 3% to CBK employees... that is a steal in any language... I wud borrow the max allowed... and promptly place it in a CBK T-Bill or T-Bond...

- Charging 3% is wrong & illogical... It does not make the employees understand the true nature of high interest rates on the rest of us... they are shielded... It's like explaining to a an obese/overfed guy... what hunger is...

bankelele said...

Coldtusker: Most bank employees have the option of borrowing at far below market rates i.e. 5 -7%. Industries perks for their employees are not uncommon e.g. airline employees who fly at fractional costs or school teachers who’s’ kids get tuition costs waived at school

coldtusker said...

Coz ur a banker??? LOL... but 3% is way below anything reasonable... At the minimum, they shud pay T-Bill rates...

Mortgages are at 15-20% on the market... 3% is a rounding error!

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Scubidu said...

Hi. Just started following your blog. Did you see their balance sheet, specifically advances to banks (note 11). It reflects the repo purchases the CBK has been conducting.

I think I know why this figure is rising. They inject reserves into the system just before a treasury auction, to enable banks to buy new treasuries. Viola...budget deficit is financed.

Check the stats and see if there's correlation between omo injections and new borrowing during auctions...

Scubidu said...

btw do any do you guys know the accounting for banks? When a commercial bank buys or sells a treasury bond, what are the accounting entries (what's debited & credited)?

Maishinski said...

Dollar is going down... Has no future. Higher risk. Yet CBK is buying like there's no tomorrow.

Time to consider a basket of currencies... and more Gold perhaps.

Swala Nyeti. said...

You have a great and informative blog Mr.bankelele.You have really found your niche man.I invite you to get stories about our kenyan celebs,including yourself(I think you are kenyan)by visiting my blog.

pesa tu said...

@scubidu:REPO's are used by CBK to inject liquidity into the banking sytem by providing funds to banks.If they cant get money on the interbank they go to CBK thru REPOs.

The budget deficit is handled through Government programmes to channel funds to Treasury Auctions -the last budgets rule channeling NSSF cash to government Bonds is an example.

pesa tu said...

Bank Accounts- I cant remember the entries but the bigger picture is what the transaction does to the balance sheet.

Buying a T-bond decreases the CASH-asset and increases GOVERNMENT SECURITIES-asset both on the asset side of balance sheet.

pesa tu said...

@:Maishinski:It makes sense to buy US$ now(CBK is GOK's banker). Most of our foreign debt is US$ denominated

Scubidu said...

@ pesa tu: Thanks 4 responding-however, the last time repos (reverse repos) were used to inject liquidity was in April-August 2008 during&after the Safcom IPO. The current CBK repo purchases (injections) began in May 2009 (to date) and we know that the huge govt. budget deficit is also financed by domestic borrowing. Looking at stats I complied, interbank rates in early May 2009 were hitting 7% and average transaction values at about Kshs8.0 bn. By October 2009 rates were 2.1%-3.2% and average transaction values were about Kshs13.5 bn (btw I collect all weekly bulletins, so I believe these figures are fairly reliable).

Three questions for ya (1) What are the injections for if normal interbank liquidity appears to have improved? (2) Where does the CBK get the money to inject liquidity? (3) Why is there a high correlation between large injections and treasury auctions; e.g., omo injections vs 29-Jun, 24-Aug, 27-Jul, 23/24-sep, 28/29-oct T-Bond auctions? During all these auctions the government acquired large new (domestic) borrowings!

Scubidu said...

@ pesa tu:According to govt. stats outstanding treasury bonds held by (Kenyan) commercial banks has risen from Kshs162.6 bn in Dec 08 to Kshs169.5bn as at May 09 to Ksh187.5bn (10%) as at Sep 09.

If what you say is true (about the accounting treatment 4 bonds purchased) then the purchase of T-bonds by banks will decrease cash reserves.

The CBK increases bank reserves (temporarily) by buy T-bonds (using repos), so would that support what I mentioned above; i.e., during an monthly T-bond auction, govt. T-bonds bought by commercial banks reduce cash reserves and CBK increases them at around the same time?

Maishinski said...

@ Pesatu.. when dollar loses value won't the dollar denominated debt become cheaper?

$1=Ksh60 (waiting & using basket)
vs
$1=Ksh75 (buying now)

A 15 bob saving for every dollar of debt is a lot of money!

:-)

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