The Central Bank of Kenya (CBK) 2015 net profit (or surplus) more than tripled to Sh48 billion on the back of a huge unrealised foreign exchange or revaluation gains.
According 2015 audited financial statements and accounts of the commercial banks’ regulator, the realised or actual profit was Sh7.4 billion, a major turnaround from a loss of Sh751 million in the previous year.
Most of the profit came from trading income that generated Sh8.17 billion, nearly three times the amount made in the previous year, largely due to sales of foreign exchange to commercial banks.
“(The) net trading income (was) from net gain on sale of foreign exchange currencies and the net gain on held-for-trading financial assets,” said the CBK in its annual financial report.
Though the regulator was not created to make a profit, it benefited from the volatility of the Kenyan shilling towards the end of last year.
The local currency lost some 12 per cent of its value last September as it exchanged at a low of 106 units to the dollar at its lowest.
However, there was a cost to the economy as imports became expensive on account of having to pay more to obtain dollars and the cost of business went up as interest rates were raised in order to attract foreign currency to Kenya.
Bank clients had to pay higher interest rates for the money they had borrowed. The shilling has since strengthened to nearly 100 units to the greenback, reducing the amount of the depreciation.
At the beginning of the depreciation last year the shilling stood at about Sh91-93 units to the dollar, meaning that it has not fully retraced the steps to the initial 2015 level.
The CBK also made money from giving loans and advances to commercial banks, although the total interest income fell to Sh3.86 billion compared to Sh4.12 billion in the preceding year.
In 2015, the total interest income from CBK investments rose by 6.9 per cent to Sh6.2 billion compared to Sh5.8 billion the previous year.
Apart from the loans and advances the other major portion of the interest income came from financial assets that it is holding to maturity which fetched Sh1.88 billion compared to Sh1.35 billion in the preceding year.
The regulator earns a commission from auctioning government securities on behalf of the Treasury but has a Sh3 billion limit as to the amount of cash it can make from these agency activity.
This means that it only earns a 1.5 per cent commission from a maximum of Sh200 billion raised in domestic borrowing and anything above that attracts no fee.
“The bank earns from the government of Kenya a commission to 1.5 per cent of amounts raised through its agency role in the issuance of Treasury bills and bonds. The annual commission income is limited to Sh3 billion as per the agreement between the CBK and the Treasury effective July 1, 2007,” said the CBK in its annual report.
In the 2014/15 fiscal year, domestic borrowing hit Sh251.1 billion, meaning that the CBK was not paid for the extra Sh51.1 billion raised.