Blame game as Kenya Shilling collapses to historic low against the US Dollar

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Kenya’s Central Bank calls on Finance minister to fix shilling

Updated Wednesday, October 11 2011 at 1016 (+3GMT)

Central Bank of Kenya Governor Njuguna Ndungu as he appeared before the country’s Parliamentary Select Committee on Finance on October 11,2011 during a meeting at Continental House, Nairobi on the sliding of the Kenya shilling against the US dollar. Photo|William Oeri

It’s up to the Treasury to formulate policies to stabilise the Kenya shilling, the country’s Central Bank Governor Njuguna Ndung’u said on Tuesday.

As he faced MPs to answer questions about CBK’s efforts, the Kenya shilling slid to Sh107 to the dollar, its worst performance ever. (READ: Kenya shilling hits record low 107 vs dollar) The currency has now lost a third of its value.

Prof Ndung’u argued that CBK had done all it could within its mandate by increasing interest rates and the onus was now on the Treasury and other government agencies that deal with taxation to implement the necessary measures.

The governor, appearing before the nation’s Parliamentary Committee on Finance, warned that there were no quick fixes.

“There are two forces pulling the shilling; the supply and demand forces. We have done our part in managing the demand side by raising the cost of borrowing.

“The remaining part is for the Treasury and other government bodies that deal with fiscal policies,” said Prof Ndung’u.

A graph tracking the performance of the Kenya Shilling against the US Dollar. Source: http://www.exchange-rates.org

Blame game

He argued that the responsibility of ensuring that there was adequate food and oil, among other essential commodities, lied with the government through the fiscal policy set by the Treasury.

“By raising the cost of borrowing, we will dampen demand for borrowing and slow down consumption (especially import-driven), which is putting pressure on the shilling,” Prof Ndung’u said.

Last week, CBK raised its lending rate by 400 basis points to 11 per cent in an effort to discourage borrowing from banks and cool demand, check inflation and stabilise the shilling. (READ: Loan pain as CBK raises interest rates)

However, the shilling continued to sink for the fourth day running, to the new record low.

“These measures cannot be felt on the ground immediately since they have to pass through the market. Banks are already reacting accordingly by increasing their lending rates,” Prof Ndung’u said.

The parliamentary committee had summoned the Central Bank to explain what measures it was taking to rescue the shilling from falling and further hurting the economy.

Chairman of the Kenyan Parliamentary Select Committee on Finance Chris Okemo(right) with Subukia MP Nelson Gaichuhie on October 11,2011 during a meeting where they grilled the Central Bank of Kenya Governor on the performance of the Kenya Shilling against the US Dollar. Photo | William Oeri

No respite in slide

Committee chairman Chris Okemo said solving the shilling crisis required joint action by players across all sectors of the economy, including the government, the private sector and CBK. Now the Okemo-led team wants to shift its focus to government bodies tasked with formulating fiscal policy.

“This is why we shall summon the Minister of Finance and the Treasury as early as next week to explain to this committee what they are doing on the supply side of the equation in order to come up with a wholesome solution to this problem,” Mr Okemo said.

Until now, the lowest the shilling had ever touched was on September 27, another Tuesday, when it traded at Sh104 against the dollar, forcing CBK to announce that it would bypass commercial banks to sell forex directly to crucial sectors of the economy.

This was not to be after a taskforce formed by Prime Minister Raila Odinga last week reversed the proposal, leaving importers to go back to commercial banks. (READ: Team to present recommendations on weak shilling)

This is what forex traders now say has caused anxiety in the market, triggering panic buying, and further increasing demand for the dollar that has in turn pushed the shilling to new lows.

At Sh107, the shilling has fallen 33 per cent this year, in what has earned it a spot among the worst performing currencies in the world.

On Monday, the shilling closed trading at Sh103.50/104.00. Though the currency crisis is running across Africa, CBK’s slow response has been cited as a key reason that has reduced confidence in the shilling.

The government has also scheduled a meeting this week with the International Monetary Fund to discuss the possibility of additional funding to the tune of up to Sh35 billion under the extended credit facility to shore up its forex reserves.

The Kenya Association of Manufacturers is also warning it will pass on the additional costs associated with the weak shilling to consumers, a situation that could further complicate CBK efforts to stop inflation.

Sleepy village in Gibo Republic wakes up to death

Desperate Gibi villagers in the aftermath of the fire tragedy that consumed their village market located 300 kilometres south of Gibo City.

Gibi market fire tragedy death toll rises to 18 as more bodies pulled out of rubble

Gibo City

Updated October 11, 2011 at 1153

The death toll of the Gibi market fire tragedy rose to 18 after six more bodies were pulled out of the rubble. Two more people receiving treatment succumbed to death as frustrated villagers turned into rescue workers in search of their loved ones.

Residents of the sleepy mountainous Gibi village, located in Kala province, 300 kilometres south of Gibo City, in the Republic of Eastern Gibo, woke up Monday to an explosion that rocked the community market at about eight in the morning.

Kala Hospital medical superintendent Lola Karoli confirmed that 30 people were admitted at the facility, three in critical condition at the intensive care unit. He added that more than 50 survivors had been treated for minor injuries and allowed to go home.

National Disaster Management secretary Moyo Omulokoli arrived at the scene two hours after the accident where he was greeted by charred bodies, desperate wails from the injured and pleas for help by helpless villages that had resorted to water, soil and leaves to contain the inferno.

Fighting back tears, Mr Omulokoli made frantic calls to the Kala fire department, which is located about 70 Kilometres downhill: providing a logistical nightmare as the one and only fire trucks got stuck on the way to the scene of accident.

By the time help arrived, Gibi market, mostly made up of tin, wooden, paper and cardboard makeshift stalls had been completely gutted, remaining a shell of its former self.

Kala Provincial Commissioner said police were yet to establish the cause of the fire. Residents pointed fingers to a kerosene stove that exploded in one of the makeshift food stalls in the market.

“I had just walked out of the café when I heard a loud bang behind me. I ran for my dear life,” said Boyo, recounting the events of the fateful day as he recuperated at the Kala Provincial Hospital.

By late Monday evening, Gibo Red Cross had set up a relief and data centre where missing persons were reported to number 13 as survivors were provided with food and medical supplies. Red Cross volunteer rescue workers were also on site combing through the rubble in search of trapped bodies.

Prime Minister Kidemba Kajuju has declared Tuesday a day of national mourning and is expected to fly to Gibi today.

Breaking News: Dozens feared dead in market inferno

Gibo City,
Monday, October 10, 2021 at 0930 (GMT+9hours)

Dozens are feared dead in a morning inferno that completely gutted Gibi market, in a remote village of Kala province, 300 kilometres from Gibo city, in the republic of Eastern Gibo.

The cause of fire is unknown but residents point fingers to a kerosene stove that exploded in one of the makeshift food stalls in the market.

0945: Kala provincial commissioner confirms that 10 charred bodies have been pulled out of the market and taken to the nearby Kala level IV hospital. Rescue efforts ongoing.

1000: National Disaster Management secretary Moyo Omulokoli arrives at scene of accident. Says the fire has been contained and now efforts will be turned to helping the injured access medical care.

1030: Kala Hospital medical superintendent confirms that 75 people are currently admitted at the facility. Five in critical condition and have been moved to the ICU. Appeals for blood donations from well-wishers. Hospital contacts: 090-642 642 809

more details to follow

Equity Bank is Kenya’s most profitable lender

Equity Bank is Kenya’s most profitable lender according to published results for the first half of this year, a feat attributed to growth of its retail base mainly consisting of micro-enterprises.

The micro-lender posted an after tax profit growth of 57 per cent to Sh4.74 billion for the first half of the year to effectively dislodge Barclays Bank, which posted the highest profit in a similar period under review last year, to position three this year.

Equity Bank, Kenya’s largest bank by customer numbers, signed up more than 1.3 million new customers, representing a 28 per cent growth – to a total customer base of 6.3 million account holders.

Equity, KCB, Barclays, Co-operative and Standard Chartered bank are now ranked the first five in terms of profitability.
Equity Bank has also moved into a hitherto exclusive forte: corporate debt. The lender has advanced infrastructural loans to the City Council of Nairobi, Rift Valley Railways and Kenya Power amounting to five billion, two billion and five billion shillings respectively.

However, Equity Bank CEO James Mwangi says that this should be construed to mean a change of strategy from micro to corporate lending.

Both KCB and Co-operative banks registered 41 per cent growth in net profits from Sh2.8billion and Sh2.34 billion to Sh4 billion and Sh3.31 billion respectively. Like Equity Bank, Co-operative bank marked a 57 per cent growth in customer numbers to 2.2 million accounts holders, up from 1.4 million; as well as growth in customer deposits by 19 per cent to Sh130.7 billion.

Conversely, Barclays, Standard Chartered and National Bank of Kenya reported a drop in their earnings. Barclays’ profit after tax dipped two per cent to Sh3.6 billion owing to fewer earnings from commissions and fees following the scrapping of ATM charges; and a drop in customer deposits.

Standard Chartered and National Bank’s profit after tax slumped 12 per cent and 22 per cent to Sh2.5 billion and Sh640 million in the first half of this year from Sh2.8 billion and Sh816 million respectively – largely attributed to increases in operating costs and the rise in interest rates which resulted in the devaluation of their bond portfolio.

The current high rates of inflation – which now stands at 16.7 per cent as at last month, is usually associated with relatively high interest rates on T-bills.
“Interest rates and the yield are inversely related,” says Duncan Kinuthia, an analyst at Bank of Africa. This, he explains, may have led to a loss in the bond portfolio of many banks.

A Central bank of Kenya report on the banking sector for the first half of the year shows that total loans and advances as well as customer deposits grew by 32 and 17 per cent respectively.

The CBK reports that in the six months to June 2011, the banking sector registered a 16.9 per cent growth in pre-tax profits, from Sh34.9 billion in June 2010 to Sh40.8 billion as at end of June 2011. Total income went up by 8.7 per cent from Sh101.5 billion in June 2010 to Sh110.3 billion in June 2011.

Source: Company Reports

Bank H1 2011 profit Bank H1 2011profit
Equity 4.7B KCB 4B
Barclays 3.6B Co-operative 3.31B
Stanchart 2.5B DTB 1.34B
CFC Stanbic 841m NBK 640m

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