CBK Governor Patrick Njoroge speaks at the Central Bank of the Future Virtual Conference on Wednesday, November 18, 2020 PHOTO | COURTESY Unlike banks chief executive officers (CEOs) who are occasionally judged on their ability to churn out a return for shareholders, the CBK is judged on the sector’s core stability.
In spite of falling earnings occasioned largely by higher costs of covering potential loan defaults, banks sound capital and liquidity positions have barely been rattled.
The two metrics have continued to strengthen amidst uncertainities as per an analysis by Citizen Digital on banks trading results to September 30. None of the major banks that have reported earnings in the period have dropped the hammer in progressing the key buffers.
Banks earnings continue to take a beating from economic disruptions occasioned by the COVID-19 pandemic. This however is merely a secondary concern for the Central Bank of Kenya (CBK).
The reserve bank’s monetary policy committee (MPC) meets on Thursday next week to discuss among other subjects, the lender’s support for the post-pandemic recovery and the review of the benchmark lending rate.
Meanwhile, banks continue to report depressed earnings. However, the CBK will lose no sleep over the evolution of sector earnings as the industry remains consistently stable by virtue of strong capital and liquidity reserves.
Unlike banks chief executive officers (CEOs) who are occasionally judged on their ability to churn out a return for shareholders, the CBK is judged on the sector’s core stability.
“As long as capital and liquidity thresholds are stable, then the poor performance of banks does not concern the CBK.” Sterling Capital Head of Research Renaldo D’Souza said.
In spite of falling earnings occasioned largely by higher costs of covering potential loan defaults, banks sound capital and liquidity positions have barely been rattled.
“The banking sector remains stable and resilient with strong liquidity and capital adequacy rations,” the CBK noted in its post MPC meeting statement in September.
Liquidity refers to the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. This is calculated by divided current assets (those reasonably convertible into cash in under a year) with short term obligations (current liabilities).Meanwhile, capital refers to the integral component of growing a business and incorporates debt, equity and working capital.The two metrics have continued to strengthen amidst uncertainities as per an analysis by Citizen Digital on banks trading results to […]
