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Slide 1 Welcome to AFRACA THE GLOBAL FINANCIAL CRISIS by liwenting



       By: Central Bank of Kenya
        Presentation Layout

1)   Background
2)   Central Bank’s Perspective
3)   Key Emerging Issues
4)   Actions by Central Bank of Kenya
                         Kenya’s Banking Industry
 Loc al Private. Inst.
       71.1%                                        Ownership of Institutions

                          NUMBER OF
                         INST IT UT IONS
                               45                      Foreign Ins t.

                                           Loc al Public Ins t.

                                 Dec 2007                    Q1 2008            Q2 2008   Q3 2008
Assets (Kshs. bn’)                  951.2                         993.6         1,099.1   1,179.1
Loan Portfolio                      518.9                         554.1          597.7     650.5
(Kshs. bn’)
NPLs (Kshs. bn’)                     41.9                         58.3           56.3      57.4
Background to Global Financial Crisis
• Global financial markets turbulence traced to the
  subprime mortgage crisis in USA in 2007
• Triggered by a fall in house prices leading to a fall
  in the value of securities backed by subprime
• Resulting in a credit and liquidity crunch in key
  global financial markets in the U.S. and Europe.
• Crisis led to unprecedented liquidity support by
  Central Banks to banking systems.
  Central Banks’ Perspective
Minister’s and Governor’s Forum (Tunisia)
• Deepening of Economic Reforms
• Effective mobilization of domestic revenues
• Deepening of African capital markets
• Economic Diversification
• Emphasis on regional integration, trade and private
  sector development
                 Key Emerging Issues
                  Impact on Economy
• Reduced economic growth rate
• Export Industry
   – Tightened or Cancelled Credit lines, Shorter Contracts,
   – Projected reduced demands
• Weakening Kenya Shilling - adversely affecting manufacturers
  and importers
• Tourism – Reduced earning
• Increased commodity prices and reduced money remittances
  from the Diaspora
• Lower foreign direct investment flows
              Emerging Issues (Cont)
     Impact on Financial Markets - Global
Weakened Banking systems
      a) Capitalization
      b) Liquidity
      c) Asset Quality – Increased NPLs and Provisioning
      d) Losses on other financial assets, such as deposits
      e) Profitability and solvency
      f) Anticipated decline in property values
      g) Employment
      h) Volatility of the stock markets
      i) Pressure on Exchange rates
                Emerging Issues (Cont)
              Impact on Kenya Banking Sector
Assessment of the possible impact of the crisis:-
    Survey in October 2008 – establish exposure of the Kenyan banking
      sector to global financial markets.
• Direct exposure insignificant due to low levels of participation
    Movements in Nostro and Vostro balances, placements/deposits and
      long term borrowings due to normal business decisions.
• However indirect effects expected from slowdown in global economies
   – reduced foreign remittances, capital flows, and lines of credit.
   – loan defaults due to decline in the values of properties and dampened
      private sector activities
          Actions by Central Bank of Kenya
• Timely collation and analysis of relevant data and information on stability
• Enhanced Liquidity Management
• Enhanced Monitoring - capital adequacy, foreign exchange exposure
• Enhanced Risk Management/BCM and Stress Testing
• Intensified surveillance of markets, institutions and infrastructure
• Strengthening of Legal, Regulatory and Supervisory frameworks
• Enhanced Joint (regional), Risk based and Consolidated Supervision
• Promotion of Credit Reference frameworks
• Strengthen reserves management to minimize losses at times of financial
• Lender of the last resort to distressed banks.

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