THE GLOBAL FINANCIAL CRISIS AND CHALLENGES TO AFRICA:

1. THE GLOBAL FINANCIAL CRISIS AND CHALLENGES TO AFRICA: KENYA EXPERIENCE AND PERSPECTIVE By: Central Bank of Kenya

2. Presentation Layout • Background • Central Bank’s Perspective • Key Emerging Issues • Actions by Central Bank of Kenya

3. Kenya’s Banking Industry Ownership of Institutions

4. Background to Global Financial Crisis • Global financial markets turbulence traced to the subprime mortgage crisis in USA in 2007 • Triggered by a fall in house prices leading to a fall in the value of securities backed by subprime mortgages. • Resulting in a credit and liquidity crunch in key global financial markets in the U.S. and Europe. • Crisis led to unprecedented liquidity support by Central Banks to banking systems.

5. Central Banks’ Perspective Minister’s and Governor’s Forum (Tunisia) • Deepening of Economic Reforms • Effective mobilization of domestic revenues • Deepening of African capital markets • Economic Diversification • Emphasis on regional integration, trade and private sector development

6. Impact on Economy Key Emerging Issues • Reduced economic growth rate • Export Industry • Tightened or Cancelled Credit lines, Shorter Contracts, • Projected reduced demands • Weakening Kenya Shilling - adversely affecting manufacturers and importers • Tourism – Reduced earning • Increased commodity prices and reduced money remittances from the Diaspora • Lower foreign direct investment flows

7. Impact on Financial Markets - Global Emerging Issues (Cont) Weakened Banking systems • Capitalization • Liquidity • Asset Quality – Increased NPLs and Provisioning • Losses on other financial assets, such as deposits • Profitability and solvency • Anticipated decline in property values • Employment • Volatility of the stock markets • Pressure on Exchange rates

8. Emerging Issues (Cont)Impact on Kenya Banking Sector Assessment of the possible impact of the crisis:- • Survey in October 2008 – establish exposure of the Kenyan banking sector to global financial markets. • Direct exposure insignificant due to low levels of participation • Movements in Nostro and Vostro balances, placements/deposits and long term borrowings due to normal business decisions. • However indirect effects expected from slowdown in global economies include:- • reduced foreign remittances, capital flows, and lines of credit. • loan defaults due to decline in the values of properties and dampened private sector activities

9. Actions by Central Bank of Kenya • Timely collation and analysis of relevant data and information on stability indicators • Enhanced Liquidity Management • Enhanced Monitoring - capital adequacy, foreign exchange exposure • Enhanced Risk Management/BCM and Stress Testing • Intensified surveillance of markets, institutions and infrastructure • Strengthening of Legal, Regulatory and Supervisory frameworks • Enhanced Joint (regional), Risk based and Consolidated Supervision • Promotion of Credit Reference frameworks • Strengthen reserves management to minimize losses at times of financial crisis. • Lender of the last resort to distressed banks.