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THE GLOBAL FINANCIAL CRISIS AND CHALLENGES TO AFRICA: KENYA EXPERIENCE AND PERSPECTIVE 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. 6.7% Loc al Public Ins t. 22.2% 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 mortgages. • 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 include:- – 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 indicators • 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 crisis. • Lender of the last resort to distressed banks.
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