Annual REPORT

NOTES TO THE FINANCIAL STATEMENTS (Continued)
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
2 ACCOUNTING POLICIES (Continued)
Contingent liabilities
Letters of credit, acceptances, guarantees and performance bonds are generally written by the group to support performance
by a customer to third parties. The group will only be required to meet these obligations in the event of the customer’s
default. These obligations are accounted for as off balance sheet transactions and disclosed as contingent liabilities.
Fiduciary activities
Assets and income arising thereon together with related undertakings to return such assets to customers are excluded from
these financial statements where the group acts in a fiduciary capacity such as nominee, trustee or agent.
Employee benefit costs
The group operates a defined contribution retirement benefit scheme for all its employees. The scheme is administered by
an independent investment management company and is funded by contributions from both the group and employees.
The group also contributes to the statutory National Social Security Fund (NSSF). This is a defined contribution scheme registered
under the National Social Security Fund Act. The obligations under the scheme are limited to specific contributions
legislated from time to time
The group’s contributions in respect of retirement benefit costs are charged to the profit and loss in the period to which they
relate.
Employee entitlement to leave not taken is charged to profit or loss as it accrues.
Sale and repurchase agreements
Securities sold to the Central Bank of Kenya subject to repurchase agreements (‘repos’) are retained in the financial statements
under government securities and the counterparty liability is included in advances from Central bank of Kenya. The
difference between the sale and repurchase price is treated as interest and accrued over the life of the agreements using the
effective interest method.
Fair value hierarchy
The bank specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable
or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs
reflect the bank’s market assumptions. These two types of inputs have created the following fair value hierarchy:
· Level 1 – Quoted prices in active markets for identical assets or liabilities. This level includes equity securities and debt
instruments listed on the Nairobi Securities Exchange.
· Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly as prices or indirectly as derived from prices.
· Level 3 – inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). This
level includes equity investments and debt instruments with significant unobservable components.
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