Annual REPORT

ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
(c)
Market risks
Market risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk arise from open positions in interest rates, currency and equity products, all of which are
exposed to general and specific market movements and changes in the level of volatility of market rates or prices such
as interest rates, equity prices, foreign exchange rates and credit spreads. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
The group separates exposures to market risk into either trading or non-trading portfolios. Trading portfolios include
those positions arising from market-making transactions where the group acts as principal with clients or with the
market. Non-trading portfolios mainly arise from the interest rate management of the entity’s retail and commercial
banking assets and liabilities.
Management of market risks
Overall responsibility of managing market risk rests with the Asset and Liability Committee. The Treasury department
is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and
for the day-to-day review of their implementation. The board of directors sets limits on the level of mismatch of interest
rate repricing that may be undertaken which is monitored daily.
i) Interest rate risk
The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash
flows or fair values of financial instruments because of a change in market interest rates. The ALCO is the monitoring
body for compliance with these limits and is assisted by Treasury Department in its day-to-day monitoring activities.
The table below summarises the group’s exposures to interest rate risks. Included in the table are the group’s assets
and liabilities at carrying amounts, categorised by the earlier of the contractual repricing or maturity dates. The group
does not bear an interest rate risk on off balance sheet items.
31 December 2015
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
Non-interest
bearing
Sh’000
Total
Sh’000
Financial assets
Cash in hand - - - - - 2,779,634 2,779,634
Balances with CBK - - - - - 3,387,458 3,387,458
Balances due from banks 4,687,834 - - - - 204,524 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
55,853,882 - - - - - 55,853,882
Corporate bonds - - 727,438 840,888 - - 1,568,326
___________ _________ _________ _________ __________ __________ ___________
60,961,771 3,370,425 1,022,436 904,055 3,541,138 6,371,616 76,171,441
___________ _________ _________ _________ __________ __________ ___________
Financial liabilities
Balances due to banks 131,643 - - - - - 131,643
Customer deposits 5,101,986 6,806,558 14,884,748 4,718,018 - 31,199,548 62,710,859
Borrowings - - 135,284 3,442,571 2,009,920 - 5,587,720
____________ ___________ _____________ ____________ ___________ _____________ ____________
5,233,629 6,806,558 15,020,032 8,160,589 2,009,920 31,199,548 68,430,222
____________ ____________ _____________ ____________ ___________ _____________ ____________
Interest sensitivity gap 55,728,142 (3,436,133) (13,997,596) (7,256,534) 1,531,218 (24,827,932) 7,741,219
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