Treasury to miss Central Bank dividend after deficit

Central Bank of Kenya (CBK) will not pay any dividend to Treasury this year after it reported an operating deficit attributable to a drop in interest income.

The central bank reported a Sh1.9 billion operating deficit for the period ended June this year, compared to a surplus of Sh2.1 billion last year that saw the regulator pay a Sh1.5 billion dividend to Treasury.

The earlier payout, as disclosed in the bank’s financials released on Friday, was however lower than the Sh2.5 billion it had recommended.

“The surplus for the year of Sh3.6 billion (deficit 2012: Sh25.8 billion) has been added to the general reserve fund. The directors do not recommend the payment of a dividend,” said the CBK.

The Treasury had last year indicated that it would be looking up to regulatory agents and other State corporations to finance it in a bid to bridge budget gap. Last year, the regulators and State corporations were expected to pay dividends to the tune of Sh8 billion to the government.

(READ: Treasury gets Sh2.5bn dividend from Central Bank)

Central Bank’s surplus is, however, based on a book gain in its foreign currency holdings following favourable exchange rates during the year which turned around the operating loss.

The operating income of the bank dropped to Sh7.4 billion from Sh14.2 billion resulting to the regulator sliding into a deficit position despite cost-cutting measures which saw its operating expenses shrink by close to Sh3 billion to Sh9.3 billion.

The bank’s overall position was, however, lifted to a surplus position by the depreciation of the shilling which saw it post revaluation gains of Sh5.6 billion compared to a foreign exchange loss of Sh28 billion last year when the shilling was recovering from the tumultuous period of 2011.

Net interest income fell to Sh1.9 billion from Sh7.4 billion following a drop in interest rates and issue of credit instruments to the market by the regulator as it sought to wipe out excess cash in circulation.

“The decline is due to monetary policy undertaken in the year due to mop-up of excess liquidity in the economy. The reduction was further compounded by the low interest rates recorded on the foreign denominated deposits and investments,” said the regulator.

CBK paid out Sh4 billion in interest to holders of government papers up from Sh888 million a year earlier as it sought to stabilise the shilling and inflation rates by cutting the money in circulation.

As interest rates dropped it earned Sh5.9 billion from its savings compared to Sh8.3 billion in 2012.

CBK is undertaking changes that will see its board chaired by a different person from the governor. Economist Mbui Wagacha has been appointed interim chair, giving him mandate over the running of the institution while the governor is left to deal with policy issues.