Inside Politics

Central Bank built Sh100b war chest to survive virus

Friday, October 9th, 2020 00:00 |
Central Bank of Kenya. Photo/PD/File

Central Bank of Kenya (CBK) grew its assets by Sh100 billion and increased its gold holdings ahead of the coronavirus outbreak, recently  released data indicates.

Audited statements published in the Kenya Gazette show that the assets of CBK soared to Sh1.3 trillion, nearly 20 per cent of gross domestic product (GDP) in the financial year ended June 2020, compared to the previous year.

The bank received liquidity boost from International Monetary Fund (IMF) with money owed to the Bretton Woods institution rising from Sh81 billion to Sh153 billion in the period under review.

Independent analyst Aly Khan Satchu said CBK kept a structurally sound balance sheet that helped it ride out the pandemic.

“Central Bank has clearly had to navigate a complex and fluid post-Covid environment which they have done with a great degree of finesse,” said the CEO of Rich Management Limited AlyKhan Satchu.

Foreign exchange

It also posted a surplus (profit) of Sh41 billion in earnings compared to Sh26 billion the previous financial year.

A strong US dollar saw CBK book foreign exchange gains worth Sh24 billion up from Sh5 billion same period last year.

The audited statements show that CBK’s holdings of gold rose from Sh81 million to Sh1.06 billion in the year ended June 2020 compared to the same period the previous year.

Increased gold purchases are usually an indication of flight to safety due to uncertainty.

“Every central bank ensures that the country is able to finance its needs by taking precautionary measures, especially during dramatic events like coronavirus.

Gold is one of the safety havens,” said University Of Nairobi Economics lecturer Gerishon Ikiara.

Kenya’s central bank employed a wide arsenal of measures which ranged from cutting interest rates to the third lowest level in Africa after South Africa and Ghana to asking banks for standby succession teams in case of coronavirus deaths.

The Central Bank has in the recent past come under immense pressure over concerns about the currency which has tumbled from Sh101 to Sh108 against the dollar in the six months to September.

“A country is better off if the central bank has the financial strength needed to carry out its functions,” said the Bank for International Settlement in a statement explaining why central bank balance sheets were expanding during coronavirus pandemic.

Kenya’s central bank has been winding down its gold holdings since the end of the 2008 financial crisis.

“Liabilities increased to Sh1.1 trillion compared to Sh1.08 trillion as a result of a jump in deposits from banks and government largely attributed to proceeds to mitigate the impact of Covid-19,” CBK said.

Previous period

The CBK foreign exchange reserves rose to Sh950 billion as of June 2020 compared to Sh910 billion the previous period.

The volume of country’s reserves are a signal to investors and bilateral donors on the ability of a country to honour its debts, Ikiara said.

Central Bank, industry insiders say keeps more than two thirds of its reserves in dollars, the rest is in yen, euros and gold.

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