Annual REPORT

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NOTES TO THE FINANCIAL STATEMENTS (Continued) ANNUAL <strong>REPORT</strong> AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (b) Liquidity risk (Continued) Liquidity risk is addressed through the following measures: · The treasury department monitors liquidity ratios on a daily basis against internal and regulatory requirements · Day to day funding is managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The group invests in short term liquid instruments which can easily be sold in the market when the need arises · The group enters into lending contracts subject to availability of funds. · The group has an aggressive strategy aimed at increasing the customer deposit base. · The group borrows from the market through interbank transactions with other banks and The Central Bank of Kenya for short term liquidity requirements. · Investments in property and equipment are properly budgeted for and done when the group has sufficient cash flows. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the board. Daily reports covering the liquidity position of the group are regularly submitted to Asset and Liability Committee. Exposure to liquidity risk The key measure used by the group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. The Central Bank of Kenya minimum liquidity ratio is 20%. Details of the reported group ratio of net liquid assets to deposits and customers at the reporting date and during the reporting period were as follows: 2015 2014 At 31 December 31% 41% Average for the year 36% 33% Maximum for the year 42% 41% Minimum for the year 31% 29% ==== === ======= 68
ANNUAL <strong>REPORT</strong> AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 NOTES TO THE FINANCIAL STATEMENTS (Continued) 4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued) (b) Liquidity risk (continued) Liquidity risk based on undiscounted cash flows The table below analyses the cash flows payable by the group under non-derivative financial liabilities by remaining contractual maturities and non-derivative financial assets by expected maturity dates as at the date of the statement of financial position. 31 December 2015 Financial assets Up to 1 month Sh’000 1 – 3 months Sh’000 4 - 12 months Sh’000 1 – 5 years Sh’000 Over 5 years Sh’000 Total Sh’000 Cash in hand 2,779,634 - - - - 2,779,634 Balances with Central Bank of Kenya 3,387,458 - - - - 3,387,458 Balances due from banks 4,892,358 - - - - 4,892,358 Government securities 420,055 3,370,425 294,998 63,167 3,541,138 7,689,783 Loans and advances to customers 3,564,966 1,441,100 7,267,852 29,821,472 13,758,492 55,853,882 Corporate bonds and commercial paper - - 727,438 840,888 - 1,568,326 Other assets 51,393 - - - - 51,393 _________ _______ ________ _________ _________ __________ Total financial assets 15,095,864 4,811,525 8,290,288 30,725,527 17,299,630 76,222,834 _________ _______ _________ _________ _________ __________ Financial liabilities Balances due to banks 131,643 - - - - 131,643 Customer deposits 31,199,548 5,101,986 21,691,306 4,718,018 - 62,710,859 Borrowings - - 135,284 3,442,517 2,009,920 5,587,720 Other liabilities 158,676 - - - - 158,676 __________ _________ _________ _________ _________ __________ Total financial liabilities 31,489,867 5,101,986 21,826,590 8,160,535 2,009,920 68,588,898 __________ _________ _________ _________ _________ __________ Net liquidity gap (16,394,003) (290,461) (13,536,302) 22,564,992 15,289,710 7,633,936 ========== ========= ========= ========= ========= ========= As at 31 December 2014 Total financial assets 14,169,796 2,395,196 5,426,708 21,616,810 14,681,910 58,290,420 Total financial liabilities 27,327,619 3,208,179 13,752,115 6,108,907 - 50,396,820 ___________ __________ __________ _________ __________ __________ Net liquidity gap (13,157,823) (812,983) (8,325,407) 15,507,903 14,681,910 7,893,600 ========== ========= ========= ======== ========= ========= The above table shows the undiscounted cash flows on the group’s financial liabilities and unrecognised loan commitments on the basis of their earliest possible contractual maturity. The group’s expected cash flows on these instruments vary significantly from this analysis. 69
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