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)
ii)
Market risks (continued)
Interest Rate Risks – increase/decrease of 10% in net interest margin
The Interest Rate Risks sensitivity analysis is based on the following assumptions.
· Changes in the market interest rates affect the interest income or expenses of variable interest financial instruments.
· Changes in Market interest rates only affect interest income or expenses in relation to financial instruments with
fixed interest rates if these are recognized at their fair value.
· The interest rate changes will have a significant effect on interest sensitive assets and liabilities and hence simulation
modelling is applied to Net interest margins.
· The interest rates of all maturities move by the same amount and, therefore, do not reflect the potential impact
on net interest income of some rates changing while others remain unchanged.
· The projections make other assumptions including that all positions run to maturity.
The table below sets out the impact on future net interest income of an incremental 10% parallel fall or rise in all yield
curves at the beginning of each quarter during the 12 months from 1 January 2015.
Amount Scenario 1 Scenario 2
31 December 2015 10% appreciation 10% Depreciation
Sh’000 Sh’000 Sh’000
Profit Before Tax 2,957,128 3,252,841 2,661,415
Adjusted Core Capital 11,327,120 12,459,832 10,194,408
Adjusted Total Capital 13,882,236 15,270,459 12,494,012
Risk Weighted Assets (RWA) 73,765,213 73,765,213 73,765,213
Adjusted Core Capital to RWA 15.4% 17% 14%
Adjusted total Capital to RWA 18.8% 21% 17%
Assuming no management actions, a series of such appreciation would increase net interest income by
Sh 639,992,913 (2014 – Sh 537,335,571), while a series of such falls would decrease net interest income by Sh.
639,992,913 (2014 – Sh. 537,335,571).
Foreign Exchange Risks – Appreciation/Depreciation of Kshs against other currencies by 10%
The Foreign Exchange Risks sensitivity analysis is based on the following assumptions;
· Foreign exchange exposures represent net currency positions of all currencies other than Kenya Shillings.
· The Currency Risk sensitivity analysis is based on the assumption that all net currency positions are highly effective.
· The Base currency in which the group’s business is transacted is Kenya Shillings.
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