SPECIAL ISSUE(o9

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THE KENYA GAZETTEPublished by Authority of the Republic of Kenya

(Registered as a Neryspaper at the G.P.O )

Vol. CXVI-No. 120 NAIROBI, 3rd October, 2014 Price Sh. 60

GAZETTE NoTICE No. 6995CENTRAL BANK OF KENYA

DEPOSIT PROIECTION PUND BOARD

REPORT AND FII\.{ANCIAT, STATEMEN'TS

DIRECTORS AND STATUTORY INFORNIATION

DIRECTORS

Prof. Njuguna Ndung'uDr. Kamau ThuggeMr. Martin S. O. GumoMrs. Nasim Devji+Dr. Julius K. Kipng'etichMr. Jeremy I. NgunzeMr. Samuel N. KimaniMr. Terence Davidson*Mr. Aggrey. J. K, BettMs. Rose DethoMs. Jane K. Ikunyua

x British

BOARD AI]DIT COMI!trTTEE

Mrs. Nasim DevjiDr. Juhus K. Kipng'etichMr Jcremy I. NgunzeMr. Samuel N KimaniMr. Martin S. O. GumoMr. Terence DavidsonMrs. Edrth M Kagasi

SENIOR MANAGEMENT

Mr. Aggrey J. K. BettMs. Rose Deth<r

Mr. Kimanr Mwega

Mr Stephen M. Thuo

Ms. Jane K. IkunyuaMr. Mohamud A. MohamudDr. Walter O. Onymo

ChairmanPnncrpal Secretary, Natronal'I'reasur yAlternate to Princrpaf Secretary, Nahonal TreasuryMember - Re-appointed l -5 March 2014Member- Appointed 31 January 2014Member - Appointed 3l larlsary 2O14Member - Appornted 31 .Ianuary 201 4Member - Retrred 21 January 2014DPFB Director - (Ex-olficro Appointed 2 April2O14\DPFB Duector-- (Er<rtficio up to 2 Apt'rl 20 l4)Board Secretary

ChaupersonMemberIvlemberMemberAlternate to Prrncrpal Secretary TreasuryRetired on 21 January 2014Board Audrt Commit,tee Secretary

DrrectorDrrector - Transferred to CBK on 2 April 2014Asslstant Dlrector - Frnance & Administration -Trausferred to CBK on 18 February 20i4Assistant l)rrector - F'rnance & AdrninistrationTransferrcd lo DPFB on 18 February 2014Asslstanr l)ii,'clor - LegalAsslstant Directcr - LiquidatronsAssrstant f)rrector' - [CT

[]rrt,;

2668 THE KENYA GAZETTE 3rd October, 2014

PRINCIPAL PLACE OF BUSINESS

CBK Peusron House {formerly Marshall House)Harambee AvenueP0 Box 45983 - 00100Nairobr

AUDITORS

KPMG Kenya On behalf oJ: The Auditor-General8th Floor, ABC Torvers Kenya National Audit OfficeWaryakr Way Anniversary TowersPO Box 40612 - 00100 Unrversity WayNarobr GPO PO Box 30084 - 00100

Nairobi GPOBANKERS

(lentral Banl, of KenyaCentral Bank of Kenya BurldingHarle Selassie AvenuePt) Box 60ffi0- 002fi)Narrobr

REPORT O}- THE DIRECTORS FOR THE YEAR ENDED 30 JUNE 2014

The directors have pleasure rn submrthng their report together with the audlted financial statements for the year ended 30 June 2014, which discloserhe state of affarrs of the Board.

1. Incorporation

'The Board rs rncorporated under the Banking Act Cap 488 of the Laws of Kenya.

2. Principalactivities

. 'Ihe tsoard rs estabhshed and adminrstered under the Banking Act with the pnncipal object to provide a deposit insurance scheme forcustomers of member instrtutions and hquidate and wind up the operations of any lnstltution in respect of which the Board ls appolnted as a

liquidator in accordance with the Bankrng Act or any other written law.

Ilowever, the Kenya Deposit Insurance Act,2012 ("The Act") signed into law by the president on May 9, 2012, establishes the KenyaDeposlt Insurance Corporatlon ("KDIC") to replace the Deposrt Protection Fund Board. The Act was granted a commencement datc of Julyl, 2014 The oblectrves of KDIC is to provide deposit insurance scheme for depositors of member institutions , monitor the soundness oflnstrtutrons through analysrs, and.undertake problem bank resolution through receivership, hquidation and winding up of collapsed bankrnstltutlons.

3. Results

The results for the year are set out on page 8.

1, Directors

The drectors who served during the year are set out on page 1.

5. Auditors

The Auditor-General is responsrble for the statutory audit of the Board's books of account in accordance with Section 14 and 39(i) of thePublic Audit Act. This Act empowers the Auditor-General to appoint other auditors to carry out the audit on his behalf.

KPMG Kenya, who were appornted by the Auditor-General, carried out the audit of the Board's financial statements for the year ended 30June 2014.

6. Approval offinancial statements

The financial statements were approved at a meeting of the Directors held on 5 September, 2014.

BY ORDER OF THE BOARD

Ms. JANE K. IKUNYUABOARD SECRETARY

Date: 5 September 2014

STATEMENT OF DIRECTORS'RESPONSIBILITIES FOR THE YEAR ENDED 30 JUNE 2014

The Directors are responsrble for ttre preparatron and presentation of the financial statements of Deposit Protection Fund Board set out on pages 8 to 32whrch compnse the statement of financral position at 30 June 2014, dre statement of profit or loss and other comprehensive income, statement ofchanges in Fund balance and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanaoryinformatron.

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3rd October,2014 THE KENYA GAZETTE 2669

The Directors' responsrbilities include diterminhg that the basis of accountmg descrrbed in Note 2 is an acceptable basis for preparing and presentingthe financral statements rn the circumstances, preparation and presentatlon of financral statements in accordance widr Intemational Financial ReportingStandards and in the manner required by the Banking Act and for such intemal control as the directors determine is necessary to enable thepreparation of financral statements that are free from matenal misstatements, whether due to fraud or error.

Under the Bankrng Act, the Directors are required to prepare financial statements for each financnl year whrch glve a true and farr view of the state ofaffairs of the Board as at the end of the frnancral year and of the operating results of the Board for that year. lt also.requires the Directors to ensure theBoard keeps proper accountmg records which drsclose with reasonable accuracy the financial position of the Board

The Directors accept responsibility for the annual financial statements, which have been prepared usmg appropnate accounting policres supported byreasonable and prudent judgments and estimates. in conformity with Intemational Frnancial Reportmg Standards and un the manner required by theBanking Act. The D[ectors are of the oprnion that the financial statements give a true and falr vrew of the state of the frnancral affars of the Board and ofits operating resuls

The Directors further accept responsibility for the maintenance of accountmg records which may be relied upon m the preparation of financial statements,as wpll as adequate systems of intemal fmancml control.

The Directors have made an assessment of the Board's abrhty to contmue as a gomg concem and have no reason to beleve the Board will not be a goingconcern for at least the next twelve months from the date of thrs statement.

Approval of the fi nancial statements

The fmancial statements, as indicated above, were approved by the board of directors on 5 September 20 14 and were signed on rts behalf by:

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NJUGUNANDUNG'UChairman

NASIM DEVJIMernber

STATEMENT OF CORPORATE GOVERNANCE

ttitiI

DPFB is a body colporate estabhshed by section 36 of the Banking Act, Cap 488 Laws of Kenya. The DPFB currcntly operates as a department ofCentral Bank of Kenya. DPFB is committed to maintainrng the highest standards of integrity, professronahsm and busrness ethics in all its operatiorrs.

Board of directors

Section 36(4) provides that the Board of directors shall be composed of the Governor oI Central Bank of Keny'a, as the Charrman, PermanentSecretary to the Treasury and five other members appornted by the lr{inister for Frnance representrng the member institutions. The rnembersrepresenting the rnstrtutions during the period under review are: Mr. Terence Davidson (Retired on 21 January 20t4), Mrs. Nasirn Dev1, Dr. JuliusKipng'etich, Mr. Jeremy Ngunze and Mr. Samuel Kimani (all the three with effect from 31 January 2014).

Board meetings

The Board meets every quarter and has a formal schedule of Agenda items due for deliberahons. The Dirgctors are glven appropriate and timelymformation to maintain full and effectrve control over strategic, financial and operational issues. The Board is not lnvolved in the conduct of day-to-day business as this is a responsibrlrty glven to the Director of DPFB by the Banking Act. It however retains responsrbtlity fbr detennrnlug the poiicyof the Fund.

Audit committee

The members of the Audit Commlttee are Mr. Terence Davrdson (Retired on 21 January 2014). Mrs. Nasim Dev1i, Mr. Martln Gumo, Dr.JuhusKipng'etich, Mr.Jeremy Ngunze and Mr. Samuel Kimani. They are all non-Executive Drrectors and have expcrience rn Banking, F'inance,Accounting, Administration and Management. The committee meets every quarter, and as necessary, two weeks before the full Board meetmg. Thecommittee's responsibilities are to revlew the efficiency and effectrveness of Intemal Controls, Financial Reportrng, Intemal Audrt funchon, -lxternalaudit work, and Rrsk Management pohcres and procedures Torvards this end, a self-evaluatron tooi whrch measures the comnrittee's pJrlorrnancehas been developed and implemented.

Management structure

The DPFB senior management is made up of the Director, four Assistant Directors, each heading the Divisron o[ Frnrnce & Administration. Legal,ICT and Liquidations. The DPFB senlor management meets regularly to revierv overall perfbrmance of the Funtl Decisron rnaking is through severirlmauagement commrttees which meet regularly to deLberate and advrse the Director on spccrfic issues. All DPFB staft are emplt,yees of Central Bankof Kenya seconded to the Fund.

Directors emoluments and loans

The remuncratron pard to the Directors for services rendered durrng the financral year 2lll3l20l4 rs drsclosed rn Note 7 of thc financlal statements.The Directors, who'are all non-executive, are paid a monthly retainer fee and a sitting allowance for every mceting attended, Ihore were no loafls ioNon-Er,ecutive Directors during the year

Code of ethics

The Fund is commrtted to the highest standards of integrity, behavror and ethics. A formal code of ethrcs for all ctrployees ,rf Central Bank of Xenvaexistsandigfullyimplemented. AllemployeesoftheFundareexpectedtoavordactivrtresandfrnancrallnteresL5*hrshcouldSlvensetr'ionfllctofrnterest with their responsibilities. Stnct rules of conduct apply to the staff of CBK. rncludrng those in DPFIT, un,-ier r,,- "taff rr.ies arr.l rr-gulations

Internal controls

Themanagementof theFundhasputinplaceaseriesof internalcontrolmechanismstoensuretherepo(ing..icn;:r;leir.i!l,i '..,.,1tcaccoun:ingrnformation. ProcurementofgoodsandservlcesrsstnctlydonernaccordancewlththePubhcProcurement&ll,!'lr:ai -\ci,:(dr'- 'n-ril operationaIareas of the Fund. workflows have been structured in a manner' that allows adequate segregatron of dutres,

2670 THE KENYA GAZETTE 3rd October, 2014

Authorizations

All the expendrture of the Fund must be authorized rn accordance wrth a comprehensive set of the Fund's policies and procedures. There is a budgetwhich is approved by the Board before comrnencement of the financral year The Board rccerves regular management accounts comparing actualoutcomes against budget as a means of monitoring actual financial performance of the Fund.

Internal audit and risk management

The Internal Audrt functron is performed by Intemal Audrt Unrt, rvhrch rs responsrble for monitonng and providing advice on the intemal controlfrarnervork All reports of the Internal Audrt are avarlable to the Audrt Commrttee of the Board.

Transparency

The Fund pubhshes an Arnual Report whrch explarns the performance ofthe Bankrng sector, membership status and otherpertlnent mformatron. Onan annual basrs. the Frnancial Statements are pubhshed rn the Kenya Gazette and placed in the website of the Fund DPFB shared its 2ol2l2ol5Strategrc Plan wrth the stakeholders and carried out a mld-term revrew of the lmplementatlon status in the current year

REPORT OF THE AUDITOR.GENENERAL ON DEPOSIT PROTECTION FUND BOARD FOR THE YEAR ENDED 30 JUNE 2014

REPORT OF THE FINANCIAL STATEMENTS

The accompanyrng financral statements of Deposrt Protectron Fund Board set out below whrch compnse the statement of financral position as at 30thJune. 20 I 4, and statement of profit or loss and other comprehenslve rncome, statement of changes in fund balance equity and statement of cash flowsfor the year then ended and a summary of srgnrficant accountrng polcres and other explanatory informatron have been audrted on my behalf byKPMG Kenya audltors appolnted under secfion 39 of the Pubhc Audrt Act, 2003 and rn accordance wrth the provlslons of Article 229 of theConstrtutlon of Kenya. The audrtors have duly reported to me the results of thelr audlt and on the basrs of their report, I am satisfied that all thernformatron and explanatrons whrch to the best of my knowledge and belef, were necessary for the purpose of the audit were obtarned.

Director's Responsibility for the Financial Statements

The Directors are responsrble for the preparatron and farr presentatron of these frnancral statements in accordance wrth Intemational FinancralReportrng Standards and for such intemal control as Directors'determine is necessary to enable the preparation offinancial statements that are freefrom material misstatements, whether due to fraud or error.

The Directors are also responsible for the submrssron of the financral statements to the Audrtor-General rn accordance with the provisions of sectionl3 of the Pubhc Audit Act. 2003.

Auditor-General's Responsibility

My responsrbrlrty rs to express an rndependent oprnron on the financral statements based on the audit and report rn accordance wlth the provisions ofsectron I 5(2) of the ltblic Audrt Act, 2003 and submlt the audrt report rn comphance wlth Article 229\7 ) of the Constrtutron of Kenya. The auditwas conducted in accordance with Internatronal Standards on Audrtrng. Those standards require compliance wlth ethrcal requrements and that theaudit be planned and performed to obtarn reasonable assurance about whether the financral statements are free from material mlsstatement.

An audrt involves performrng procedures to obtarn evrdence about the amounts and drsclosures in the financial statements. The procedures selecteddepend on the audrtor's Sudgments, includrng the assessment of the nsks of the matenal mlsstatement of the financial statements, whether due tofiaud or error. In making those risk assessments, the audrtor consrders intemal control relevant to the entity's preparation and farr presentation of thefinanclal statements in order to desrgn audit procedures that are appropriate rn the circumstances. but not for the purpose of expressing an opinion onthe effectiveness ofthe Board internal control. An audrt also mcludes evaluatrng the approprlateness of accounting estimates made by the Directors,as well as evaluatrng the overall presentatron of the frnancral statements.

I beheve that the audrt evrdence obtarned rs suffrcrent and approprrate to provrde a basrs for my audit opinron.

Opinion

ln my oprnron, the financral statements present farrly, rn all matenal respects the frnancral posltlon of the Deposit Protectlon Fund Board as at -10

June 2014, and of rts financral performance and rts cash flows for the year then ended, rn accordance wlth Internatlonal Financial ReportingStandards and the requirements of the Bankrng Act Cap. 488 of the laws of Kenya.

EDWARD R, O, OUKO,Auditor-General.Nairobi29th September,2014

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2014

REVENUE

Assessment rncomeInvestment rncomeOther income

EXPENSES

Adminrstratron and estabhshmentImparrment Iosses

Note

5(a)s(b)6

2014KShs'000

2,675,8534,675,863

19,112

7.370,888

251,t96

25t.196

2013KShs'000

2,340.0334.059.415

31,77 6

6,43t,224

250,368t,370

251.138

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SURPLUS FOR THE YEAR

Other comprehensrve income

TOTAL COMPREHENSIVE INCOME

The notes set out below form an integral part of these flrnancial statements

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2014

7,119,692

7,1L9,692

2014KShs'000

59,92t3,3t7

10026,803,199

26.866,537

q 56?

t9,'766,3871,025

19.776,975

46,643,512

46,583,759

10,96618,91129,876

59;753

20t4KShs'000

7,119,692

NASIM DEVJIMember

6,179,4ffi

6,t79,4U

2013KShs'000

69,6953,416

10027,325,123

27,398,334

7,08512,046,2t8

78,389

t2,131,692

39,530,026

39,464,06'7

6.99621,21637,687

65.959

Fund balance

39,464,067

7,119,692

46,5E3,759

33,284,581

6,t79,486

39.464.M7

2013KShs'000

6,179486

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ASSETS

Non-current assetsProperty and equipmentPrepaid operating lease rentalsInvestmentGovernment securities

Current assetsReceivables and prepaymentsGovernment securitiesCash and bank balance

TOTAL ASSETS

FUND BALANCE AND LIABILITIES

Fund balance (Page l0)

Current liabilitiesPayables and accrualsDue to related partyDeferred income

NJUGUNANDUNGUChairman

The notes set out below form an integral part of these frnancral statements.

Cash flows from operating activities

Surplus for the yearAdjustment for:

8(a)t2

Note

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TOTAL FUND BALANCE AND LIABILITIES 46,643,512 39,530,026

The financial statements on pages 8 to 32 were approved by the Board of Duectors on 5 September 20 14 and were signed on its behalf by:

STATEMENT OF CHANGES IN FUND BALANCE FOR THE YEAR ENDED 30 JUNE 2014

KShs'0002014:

Balanceat I July20l3

Surplus for the year

Balance at 30 June 2014

2013t

Balance at 1 htly 2Ol2

Surplus for the year

Balance at 30 June 2013

The notes set out below form an integral part of these financial statements.

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2014

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2672 THEKENYA GAZETTE 3rd October,2014

Note

Depreciation of property and equipmentAmortisation of prepaid operating lease rentalsWrite offsGain on disposalIntercst income

Opereting surplus bcfore working cepital changcs

Change in working capital

Receivables and prepaymentsPayables and accrualsDcferred incomeDue to related party

Net cesh flows gencrated from operating activities

Cesh lkiws from invcsting activities

Net movcment in govemment securitlesPurchase ofproperty and equipmentProceeds from disposalsTransfersInterest received

Nct cesh flows from investment activities

Net decrease in cash and cash equivalentsCash and cash equivalents at the beginning of the year

Cash and cesh cquivalents at the end of the ycar 16

The notes sct out on pages 12 to 32 form an integral part of these financral statements

1.

2014KShs'000

11,775

(4,6'1s,863)

2,455,703

( 2,4'78)3,9'70

( 7,81l)( 2,36s)

2,447,019

('7,489,772)( 2,001)

4,675,863

(2,815,910)

( 368,89r )414,852

45,961

20L3KShs'000

11,33399

9,466( 1,s68)(4,0s9,415)

2,139401

( t,942)662

27,5164,333

2,169,970

(5,974,511)( 49,165)

2,t20I,163

4,059,415

(r,960,978)

208,992205,860

414852

NOTES TO THE FINANCIAL STATEMENTS FOR TTIE YEAR ENDED 30 JUNE 2014

R4FORTING ENTITY

The Board is incorporated under the Banking Act Cap 488 of the Laws of Kenya and is domiciled in Kenya. The address of its registcredoffice is as follows:

CBK Pension House (formerly Marshall House)Harambee AvenuePO Box 45983 - 00100Nairobi

2, BASISOFPREPARATION

(a) Basis ofaccounting

The financial statements have been prepared on the historical cost convention.

(b) Statemcnt of compllence

The financial statements have been prepared in accordance rvith Intern;ttional Financial Reporting Standards (IFRSs).

Functionel end presentation currency

Thcse financial statements are presented in Kenya Shilhngs (KShs,;, which rs the Board's functronal currency.

Use of estirngtcs end judgmcnts

Thc preparation of financial state{x'nts in conformity with [nternational Financial Reporting Standards requires the use of cstimatesand assumptions ttat affect the repolted amounts of assets and liabilities and disclosures of contingent liabilitics at the date offinancial statements and the reportcd amounts of revenucs and expenses during the reporting period. The estimates and assumptionsare bascd on the Directors' best knowledge of current events, actions, histoncal experience and various other factors that are believedto be reasonable under the cfucumstances, the results of whrch form the basis of making the judgcments about the carrying valucs ofthe assets and liabilities that are not readily apparent from other sources. Actual results may differ from t\ese estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates arc recognised inthe period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if therevision affects both current and future periods.

In particular, information about significant areas of estimation and critical judgement in applying accounting policics that havc themost significant effcct on the amount recognised in the financial statement is described in Note 4.

(c)

(d)

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3. SIGNIFICANTACCOUNTINGPOLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have beenconsistently applied to all the years presented, unless otherwise stated.

(e) Revenuerecognition

Assessed income comprises contributions levied to the contributory institutions and is recognized in the period wr^ " a,'receivable. Such contributions are assessed at a rate of 0.15 per cent of the average of the institutions' total deposit liabilities durrngthe period of I 2 months prior to the date of levy notice.

Interest income is recognized in the profit or loss for all interest earning instruments on an accnral basis using the effective interestmethod based on the actual purchase price. Interest income includes coupon eamed and unamortrzed discount and premium.

(b) Transletionofforeigncurrencies

Transactions in foreign currencies during the year are converted into Kenya Shillings at the exchange rate ruling at the date of thetransaction. Foreign currency monetary assets and liabilities are translated at the exchange rate ruling at the reporting date. Resultingexchange differences are recognised in profit or loss for the year.

Non-monetary assets and liabilities denominated in foreign currency are recorded at the exchange rate ruling at the date of transaction.

(c) Provisions for payments to dcpositors

Provisions for payments to protected depositors are recognized in the financial statements in the period the contributory instirutionsare placed under liquidation. Any payments that exceed the provisions made are taken into account in determining operating profit.Provisions that relate to unclaimed protected deposits are wntten back to income on explry of the statutory notice period.

(d) Leases

Lrases where the lessor retains substantially all the risks and benefits of ownership of the asset are classifred as operating leases.Payments made under operating leases are recognized as an expense in the profit or loss on a straighrline basis over the lease term.

(c) Employeeentitlements

Employee cntitlements are recognized when they accrue to employees. A provrsion is made for the estimated liability for suchentitlements as a result of services rendered by employees up to the reporting date. The estimated monetary liability for employees'accrued annual leave entitlement at the reporting date is recognized as an expertse accrual.

(c) Employeeentitlcmcnts (continued)

The Board's employees are eligible for retirement benefits under a defined benefit plan provided through a separate fund. The definedbenefit plan is funded by the Board and the Central Bank, the main sponsor. The retirement bcnefit asset is wholly recognized in thefinancial statements of the Central Bank while the Board recognizes contributions to the fund as if it were a defined contributionscheme by chargrng them to the profit and loss account in the year to which they relate.

The Board also contributes to a statutory defined contribution Pension Scheme, the National Social Security Fund (NSSF). TheBoard's contributions are charged to the income statement in the year to which they relate. The Board has no further obligation oncethe contributions have been paid.

(f) Taxation

The Board's lncome ls not subject to tax as it has been granted exemption by the statutc. Therefore no provision for currcnt tax ordefened tax is made in the financial statements.

G) Flnanciel assets end liebiltties

(r) Recognilion

The Board recognizes all financial assets and liabilities on the trade date at which the Board becontes a party to the contractualprovision of the instrument. A financial asset or liability is initially measured at fair value plus (for an item not subsequently measuredat fair value through profit or loss) transaction costs that are directly anributable to its acquisition or issue.

Subsequently, held-to-maturity investments and loans and receivables are measured at amortised cost.

(it Chssifuation

The Board classifies its fmancial assets in the held-to-matunty and loans and receivables category. The Board classifies itsfinancial liabilities as measured at amortised cost. Management determines the classification of its investrnents at initialrecognition.

Held-to-maturity

Hcld-to-maturity investrnents are non{erivative financial assets with fixed or determinable payments and fixed maturities that theBoard's management has the positive intention and ability to hold to maturity. Were the Board !o sell other than an insignificantamount of held-to-mahrity assets, the entte category would be tainted and reclassified as available for sale. These includeinvcstrnent in govemment securities.

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Loans and receivables

Loans and recervables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an

active market.

They arise when the Board provides money directly to borrowers, other than those created with the lntention of short-termprofit taking. They are recognised at the date money is disbursed to the borrower or when they are transferred to the Boardfrom a third party.

Subsequent to inrtial recognition, these are carried at amortised cost, which is the present value of the expected future cash

flows, drscounted at the instrument's original effectrve interest rate Loan ongination fees together with related direct costs aretreated as part of the cost of the transaction.

Amortised cost rs calculated usrng the effecfive lnterest rate method. The amortisation and accretlon of premiums anddiscounts is included in interest income.

Othe r f nanc ia I I iab il t ie s

Other financial liabilities are measured at amortised cost. These include other payables and amounts due to related companies.

(iii) Identifuation and measurenunt of impai.mcnt of financiol assets

At each reporting date the Board assesses whether there is obpcuve evidence that financial assets not carried at fau value thoughprcfit or loss are unpaired. Financral assets are imparred when objective evidence demonstrates that a loss event has occurred afterthe initial recognrtron of the asset, and that the loss event has an impact on the carrying amount.

lmpairment losses on assets carried at amortized cost are measured as the drfference between the carrying amount of the financialassets and the present value of estimated cash flows discounted at the assets' original effective mterest rate. hsses are recognized

in profit or loss and reflected in an allowance account. Interest on the impaired asset contmues to be recognized through theunwinding of the discount.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through profit or loss.

(iv) Derccognition

The Board derecognrzes a financial asset when the conractual rights to the cash flows from ttre hnancial asset expire, or when ittransfers the righs to receive the contractual cash flows on the financnl asset in a tansactron in which substantially all the risksand rewards of ownership of the financial asset are transferred. Any interest in fansferred financral assets $at is crcated or retainedby the Board is recognrzed as a separate asset or liablhty.

The Board derecognizes a financial liabrlity when iLs contrachral obligations are discharged or cancelled or expire.

The Board enters into transactions whereby it transfers assets recognized on its statement of frrancral posiuon, but retains erther allor substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewardsare retarned, then the transferred assets arc not derecognized from the statement of fmancial posrtion.

(v) Offsefring of financial assets and Jirwncial liabilitie s

Financial assets and financial liabilities are offset and the net amount reported on the statement of financral position when there is alegally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the asset andsetde the liability simultaneously.Income and expenses are presented on a net basrs only when permitted under IFRSs, or for gains and losses ansing from a group ofsimilar transactions such as rn dre Board's nading activrty.

(vi) Fair value of financful assets and liabililies

Fair value of financral assets and financial liabrli[es is th,: pr,ce that r.ould be received to sell an asset or paid to transfer a

liability respectrvely in an orderly transactiou between nrarket particrpanis at the measurement date.

Impairment for non-financial assets

The carrying amounts of the Board's non-financial assets, are reviewed at each reporting date to determine whether there is any indicationof impairment. If any such indication exists then the assets' recoverable amount is estimated.

An impairment loss is recognized if the carrying amount of an a.sset or lts cash-generating unit exceeds its recoverahle amount. A cash-generatrng unit is the smallest identrriabie asset group that generatrs cash flows that largely are independent from other assets and groups.Impairment losses are recogmzed in profit or loss. Impainnent losses recognized rn respect of cash-generating uuits are allocated fLrst toreduce the carrying amount of any goodrvili aliocaled to the unlts and then to ltduce the carrying amount of the other assets in lhe unlt(group of units) on a pro-rata basis. .

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing

value in use, the estimated future cash flows are discountcd to their present value using a prc-tax discount rate that reflects cunent marketassessments of the time value of money and the risks specific to the asset.

Investment held for sale

Investrnent held for sale relates to investment in a subsrdrary whrch rs accounted for under IFRS 5 'Non-current assets held for saleand discontinued operatlons'. The investment is stated at the lower of rts carrylng amount and the fair value less costs to sell.

(i)

3rd October, 2014 THE KENYA GAZETTE 2615

CI)

(k)

Cash and cash equivalents

For the purposes of the statement of cashflows. cash and cash equrvalents comprise cash on hand. bank balances and govemmentsecuntres matunng wrthrn 9 I days from the date of issue,

Property and equipment

O Recognition and nuasurenunt

Items of property and equrpment are measured at cost less accumulated depreclatlon and rmparrment losses.

Cost rncludes expenditures that are drrectly attnbutable to the acqursition of the asset.

(i, Subsequent costs

The cost of replacing part of an rtem of property or equlplnent rs recognised rn the canylng amount of the rten) rf it rs probabL'that the future economic benefits embodied within the part will flow to the Board and its cost can bc measured rehably.'l'hecosts of the dayto-day servrcmg of property and equrpment are recognised in profit or loss as incurred.

(iii) Depreciation

Deprecration rs recognrsed rn profrt or loss on a strarght hne basrs over the estlmated useful lrves of each part oi an rtcrn ofproperty and equrpment as fbllows

Long term leasehold landBuildingsComputer equrpmentICT EquipmentOffice equipment, fumiture and frthngsMotor vehicles

I;

IIIILiI

rt

it

I

t

I

t

L

Over the lease penod. :-/o

33.33%,2OVo

20%25Vo

Deprecrabon nrethods, useful hves and residual values are reassessed anil adjusted. ifilppropnate, at caoh repofling date.

Garns and losses on drsposal of propeny and equiprnent arc determined by reference 10 thelr clrr,vnrg alno,.lnt and ard

recognized rn profit or loss in the year in whrch they anse

(l) Related parties

In the normal course ofbusmcss. the Board has entere{r rnto transactions wltlr related partres. The related party- rransarlr(ilrs i,rc at

arm's length.

(m) Grants

Other grants are recognised rnitrally as deferred income at farr value when there is reasonable assurance that diey r rll hr'rcc..iyeriand the Board rvrll comply lvlth the condltions

(n) Comparatives

Where necessary, comparatrve figures have been adjusted or excluded to conform to changes rn presentatron in the current vear

(o) New standards and interpretations

(i) Adoption ofnew sfandards or amendments effective for the year ended 30 June 2014

New standard or amendmenls

' Amendments to IFRS 7-Drsclosures-Otfsettrng F-rnancral Assets andFrnancial Liabilrt ies.

t IFRS I 3-Fair value rneasuremento IAS I Presentatlon of Financral Statements - Prescntauorr of iterns of Other

Uffective for annual perit d^s

iregiirning on or afterI lanuar1 201.1

I .lanurrr- 2() i -lI january 20l-1

Conrprehensrve Income lOCI)

Other than IAS I and IFRS 13 as detailed below. the adoptron of these standards drd not have a siguihcant inlprct ({i -ji,'amounts reported or presented rn these financial statements

(t) IAS 1 'Presentation of ltens of Other Comprelunsive Income' has been adopted frrr (hc frrst lrme {or rhe tinancr.rlended 30 June 20'14

The arnendment requues that ltems presented w(hln Other Comprehensrve Income (OC'I) be grouperl separately lnto thnsjitems that will be recycled into profit or loss at a ftrture pomt rn time. and thrrse rterns tbrt rvill itver lrc reclcled Theamendment affects presentatron only and thcrefore has no signrfrcant impact on the Brrarrt s fin .nciai i,'ositiou cl p,.'i rbnnan.,:

(iil /FRSlJ'FairValueMeasurement'has beenadople(i forihehrsttimefortheti;r:.nor; "e'r;n.leil "t i,'.r,- "'1 iIFRS 13 replaces the fair value measuremcnt guidailce contamed in rndrvrdual lf.t'lSs . rti a \ilii.r \, l-r,, i, (.i farr ',,lluemeasurement guidance. It defines farr value, estabLshes a frame'work for mcasunng lirr \.1,,j "'(a '. oirr ilisclosr-rerequrrements for farr value measurement. Thc sandard does not provrde a srgnrticant rltp'r-rtr-L- i-.)i; trr: - , .:i1iirc,lr,on oif'alr value accounting hrghLghted under note 3 g (vr.1 and as expounded helolv

2676 THE KENYA GAZETTE 3rd October, 2014

Determination of fair value

Policy applicable from 1 January 2013

Farr value rs the pnce that would be received to sell an asset or paid to ransfer a habrlrty rn an orderly transaction betweenmarket participants at the measurement date in the pnncrpal or, in its absence, the most advantageous market to which theBoard has access at that date. The fair value of a habrlrty reflects its non-performarce risk.When avarlable, the Board measures the fair value of an lnsftument usrng the quoted pnce in an actlve market for thatinstrument. A market is regarded as active rf transactrons for the asset or habtlrty take place with sufficient frequency andvolume to provrde pricrng information on ar ongorng basrs. If there ls no quoted pric€ in an active market, then the Board usesvaluatron technlques that maxlnuze the use of relevant observable rnputs and minimize the use of unobservable inputs. Thechosen valuatron technique incorporates all of the factors that market participants would take into account in pricing a

tran sac tron .

Policy applbablt before I January 2013Fair value rs the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing partiesin an arm's length transactron on the measurement date. When available, the Board measures the fair value of an instrumentuslng quoted pnces in an actrve market for that instrument. A market is regarded as active if quoted prices are readily andregularly avarlable and represent actual and regularly occurring market transactions on an arm's length basis.If a market for a financial instrument is not active, then the Board establishes far value usmg a valuation technrque. Thechosen valuation technique makes maximum use of market mputs, relies as little as possible on estmates specific o the Board,rncorporates all factors that market participants would consider in setting a pnce and is consstent with accepted economicmethodologres for pnclng financial rnstruments.

(iit) Amcndnen* to IFRS 7 Disclosures Transfen of Firurcial Asse8. The amendments to IFRS 7 increase the disclcurcrequrrements for transactrons involvrng transfers of financnl assets. These amendments are rntended to provlde grcatertransparency around rrsk exposures of transacEons where a financral asset is transferred but the transferor retarns some levcl ofcontmulng exposure m the asset

The apphcation of the amendment had no effect on the Board's financial statements as the Board drd not transfer suchfinancral assets during the year

(ii) New standards and amendments not yet effective

I

iI

ql

New standard or amendments. IFRS 9 Frnancral Instruments (2010). Amendments to IAS 32-Offsettrng Frnancral Assets and

Liabihtres (201 l). Amendmenrs to IFRS 10, IFRS 12, and IAS 21 \2012). Amendments to IAS 36-Recoverable Amount Drsclosures for Non-

Financral Assets (20 I 3)

Effective for annual periodsbeginning on or afterI January 2018

Financial 1 lanuary 2O14

1 lanuary 20141 January 2014

I Jantary 2Ol4I July 2014

. Amendments to IAS 39 trtled Novation of Derivatives and Continuation of I January 2014Hedge Accountrng

. IFRIC 2l Levies (2013)

. Defined Benefit Plans. Employee Contnbutions (Amendments to IAS l9)

(t) IFRS 9: Financial Instrununts (2010)It replaces parts of IAS 39 - Financral Instruments. Recognition and Measurement that relates to classification,measurement and recognrtion of financial assets and frnancial liabilities. IFRS 9 requrres financral assets to be classrfied, atlnrtral recognlhon as erther measured at farr value or at amortlsed cost. The classrficahon depends on the entrty's businessmodel for managlng rts financral lnstruments and the charactenstrcs of the contractual cash flows of the instnrment. Forfinancral habrlrtres, the standard retalns most of the requrrements of IAS 39. The marn change rs that, rn cases where thefair value optlon rs apphed for financral habrlrties, the part of a fair value change arrsrng from a change in an enttty's owncredrt rrsk rs recorded rn other comprehcnsrve income rather than the profit or losi, unless thrs creates an accountlngmismatch

The standard is efTectrve for periods begrnnrng on or after I January 201 8 and will have an impact on the Board.

(i, Atnendments to IAS 32: Offsetting Financial Assets and Financial Liabilities

The amendments address rnconsrstencles rn current practice when applying the offsettlng criteria rn IAS 32, mainly by clarifyingthe meau[]g of "currently has a legally enforceable flght of set-off' and t]rat some gross settlement systems may be consideredequrvalent to nr-t settlement These amendments are effective for annual penods begrnnrng on or after 1 January 2014, withretrospectrve applrcatron

(iiil Amtndmcnts to IFRS 10,IFRS 12 and IAS 27: Investment Entities (2012)

The amendments defrne "rnvestment entities" and provrde them an exemptron from the consohdatron of substdrariesi rnstead, an

investment entity is requrred to measure the investment in each ehgrble subsrdrary at farr value through profrt or loss in accordancewith IFRS I / IAS 39 (the exception does not apply to subsrdrarres that provrde servrces relating to the investment entity'slnve \tment activities). An investment entlty is requrred to account for its lnvestment in a relevant subsidiary rn the same way in itscons()lr{l,r(e(l and separate frnancial statements, and addrhonal drsclosures are lntroduced The amendments are effectrve for annualperrocls treglrrrrrg on or after I January 2014,

The Drrectors do not irrtlcrpate any effect on the Board's frnancral statements

1

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3rd October,2014 THE KENYA GAZETTE 2677

(iv) Amendments to IAS 36: Recoverablc Amount Disclosurestor Non-Fhuncial Assets (2013)

The amendments reduce the crcumstances in whrch the recoverable amount of assets or cash-generating units is required to bedrsclosed, clarify the disclosures required, and rntroduce an explicit requirement to disclose the discount rate used in determiningimpairment (or reversals) where recoverable amount (based on fair value less costs of disposal) is determined usrng a present valuetechnique. They are effective for annual periods beginning on or after I January 2014.

(v) Anundments to IAS 39 titled Novation of Derivatives and Continuation of Hedge Accbu*ing (lune 2013)

The amendments permit the continuation of hedge accounting in a situation where a counterparty to a derivative designatedas a hedging instrument rs replaced by a new central countelparty (known as 'novation ofderivatives' ), as a consequenceof laws or regulations, if specific conditions are met.

(vi) IFRIC 21: Levies (2013)

The interpretation provides guidance on when to recognise a liability for a levy imposed by a govemment. The obligatingevent for the recognition of a liability is the activity that triggers the payment of the levy in accordance with the relevantlegislation. It also provides guidance on recognition of a liability to pay levies: the liability is recognised eitherprogressively if the obligating event occurs over a period of time, or when the minimum threshold is reached if anobligation is triggered on reaching that minimum threshold. The interpretation rs effective for annual periods beginning on

- orafter I January 2014.

(vii) Defined beneftt plans - Employee contributions (Anundnunts to IAS 19)

The amendments clarify the requirements that relate to how contributions from employees or third parties that are linked toservice should be attributed to periods of service. In addition, it permits a practical expedient if the amount of thecontributions is independent of the number of years of service.

The amendments are effective for annual periods beginning on or after I July 20 14, with earlier apphcation being permitted.The Board's defined benefits scheme does not provide for employee contributions. The adoption ofthese changes would not affectthe amounts and disclosures of the Board's defined benefits obligations.

The Board did not early adopt new or amended Standards during the 2014 financial year and is in the process of assessing theimpact.

4, CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including experience of futureevents that are believed to be reasonable under the ctrcumstances.

(a) Critical accounting estimates and assumptions

O Property and equipment

Critical estlmates are made by the management m determining deprecration rates for prcperty and equipment. The rates usedare set out in the accounting policy for property and equipment.

(it Impairment of receivablcs

The Board reviews its recervables' portfolio regularly to assess the likelihood of impairment. This requires an estimation of theamounts that are lrrecoverable especially debts incurred by instltutrons under hqurdatron.

(b) Critical judgements in applying the entity's accounting policies

In the process of applyrng the Board's accounting policies, management has made judgements in determining whether assets areimpaired.

5. INCOME2014 2013

(a) Assessment income KShs'000 KShs'000

Total average deposits of institutionsassessed as contributors l:182902,18 1559,6222q

0.1 57o of total average deposits 2,674,353 2,339 A33Minimum contribution from 5 Deposit TakingMicrofinance (DTM) (2013 - 2) 1,500 600

Total assessrnent income 21575853 2,A,033

(b) Investment income

(i) Interest earned, on treasult bills received

Drscount on 91 day treasury bills 34,330 91,039Drscount on 182 day treasury bills 33,963 293,130Discount on 364 day reasury bills l2O7 278 389,016

1,275571 773.t85

2678 THE KENYA GAZETTE 3rd October, 2014

(it Interest earned on treasury bonds received

Matured bondsDiscount on purchaseAmortrsation of premium

Total investment income

OTHERINCOME

Recoveries from subrogated clarmsGain on sale/dlsposal of assets

Penalty charges on late contflbutronsImpairment losses reversedRecoveries from lnstltutrons in liquidatlonGrant income

ADMINISTRATION AND ESTABLISHMENT EXPENSES

Staff costsDepreciationIrase amortlzatronAuditors remunerationDirectors' emoluments - feeskgal and professronal fees

Occupancy costsOther

RECEIVABLES AND PREPAYMENTS

(a) Receivables and prepayments

Receivables and prepaymentsProvision for impairment losses (|iote 8(b))

At I JulyAdditional provisionWrite back - impairment losses

At 30 June (Note 18(a))

PROPERTY AND EQUIPMENTFurniturc

2014: Buildings &fittingsKShs'000 KShs'000

Cost:At I July 2014 16,740 21,444Addrtions - 325

At 30 June 2014 16,740 21.769

DepreciationAt I July 2013 4.051 10,331Charge for the year 367 I ,38s

At 30 June 2014 4.418 11,720

Carrying amountAt30June2014 12)22 10,049

2O732

Co.t

3,2'74,39114044514,544)

3,440,2924,675,863

522

6.215

198t2,23719,172

157,1r01t;7'75

99I.t005,301

l0t5.94759,154

251,1962014

KShs'fiX)

111,908(102,345)

9563

3,1M,349r60.165

( 18,284)

3,286,2304,059,415

1,568285

5

1,963?7 q55

31,776

144,987r 1.333

99I .0178,046

I 1,15813.19860,530

250,3682013

KShs'0fi)

109,430(102,345)

7,085(b) Provisions for impaired reccivables

As at 30 June 2014, recervables amounting to KShs 102 mrllion (2013 - KShs 102 million) were fully rmpaired and provided for.Movement in the provisions for impairment of recervables were as follows:

and kitchen Motorcquipmcnt vehicle ComputcrsKShs'000 KShs'000 KShs'000

10.606 r1.659 7.263545 1.1 3 I

I 1,151 1 1 ,659 8.394

7 ,7 t7 6.901 6.344622 1.189 743

8,339 8,090 t,081

2014KShs'000

102,345

t02.34s

OfficeWork-in- ICTprogrcss Equipment

KShs'000 KShs'000

- 43,914

- 43,914

- 6,587- '7,465

- 14.052

2013KShs'fiX)

104,1261,370

( 3,1s1)

10234s

TotalKShs'000

rtt,6262,001

|L3.621

41.931tt .77 5

53.706

59.92r

'77.910

49.165( 4.820)( 9,466t( 1.r63)

t11.626

I

IlI(i{i(

I

i:

I

At I July 2012Arid't.r,lsDisposalsWntc offs

16.740 16.5944.850

21.444

2,812 3569 7307

10,205 t6,479 8.126401- ( 4,820)

( I,163)

10.606 11.659 7,263

29,862

9,466- 43,911

te.466)Transfers/write offs

At 30 June 2013 16.740

3rd October,2014 THE KENYA GAZETTE 2679

2014: BuildingsKShs'000

Furniture and kitchen Motor& fittings equipment vehicle

KShs'000 KShs'000 KShs'000

OfliceWork-in- ICT

Computers progress Equipment TotalKShs'000 KShs'000 KShs'000 KShs'000

DepreciationAr 1 July 2012 3,684Charge for the year 367Deprecraflon on disposals

At 30 June 2013 4,051

Carrying amountAt 30 June 2013 12.689

l 0,33 1 7 ,t 17 6,901 6.344

8,860t-471,

7,035 9,583 5.704682 1,586 640

(4,268)

- 34,8666,587 I 1,333_ _( 4,268)

6,587 41,93t

11,113 2,889 4,758 919 37,327 69,695

No deprecration has been charged in arrrvlng at the results for the year ln respect of certain fully depreciated assets with a cost of KShs5,836,970 (2013 - KShs 5,341,968) and arc shll in use. If deprecrabon had been charged during the year on the cost of these assets atnormalrates rt would have amounted to acharge to profitorloss of KShs 1.945,631 (2013 - KShs 1.780.638).

PREPAID OPERATING LEASE RENTALS

CostAt I July and 30 June

AmortisationAt I JulyAmortisation for the year

At 30 June

Carrying value at.10 June

INVESTIVIENT

Investment m Consolidated Bank of Kenya Lrmited10,000,000 ordinary shares of KShs 20 eachProvrsron for drminutron rn value

2014KShs'000

/_ <)1

l,10699

1,205

3,317

200,000( 1e9,900)

100

2014KShs'000

44.936

14,r79,5245,541,9n

26,803,199

46569,586

19,1b6.387

26,803,199

46,569,5E6

20t4KShs'000

10,966

20L3KShs'000

4,522

1,00799

1,106

3,416

200,000( I 99,900)

100

2013KShs'000

336,463

7,583,3164,126,439

27,325,123

39371,y|

12.046,218

27,325,t23

39371,341

2013KShs'000

6996

The Board orvns 10,000,000 Ordinary shares of the Consolidated Bank of Kenya Limited that were acquircd usirrg a grant from tfieNatronal Treasury for DPFB to resolve a bankrng crisis at the time. At the trme of acquisition of the rnvestmenr, the Banking Act allowedthe Board to acquire, hold ordrspose shares ofan institution that might otherwise result in a loss to the Board. The Banking Act was lateramended and now prevents the Board from holding rnvestments other than ln govemment secuntres. The Covernment, through theNatronal Treasury plans to pnvatlze Consohdated Bank and has therefore drrected thc Privatization Commrssron to explore and advrse onhow the shares are to be sold. A Consortrum has been appointed to guide on the intended Privatization. Due to the above, the requrementfor consolidation on IAS 27 does not apply.

The investment was last valued in December 2004by extemal consultants and the value of the shares was'consrdered to be effectively nil.In the opinion of the directors, the addrtronal drminution in value of KShs 100,000, based on thrs valuation, is not material for recognitionin the financial statements.

It is to be noted that enactment of the KDI Acl,2Ol2, Section 6 allows the Deposit lnsurer to acquire, hold shares, and make loans andadvances for purposes ofreducrng or avertlng a risk to an lnstitutron or the financial system or a threatened loss to the Corporatron.

12. GOVERNMENTSECURITIES

Treasury bills maturing within 9l days ofplacement (Note 16)Treasury bills maturrng after 9 I days fromdate of placementTreasury bonds maturing within I yearTreasury bonds maturing after 1 year

ComprisingMaturing wrthln 1 year of theStatement of Financral Positron dateMaturing after 1 year of the Statement ofFinancial Positron date

PAYABLES AND ACCRUALS

Sundry payables and accruals

The weighted average effective rnterest mte on held k) m"lurity investments as at 30 June 2014 was 10.887o (2AB - 11.049o).

2680 THE KENYA GAZETTE 3rd October, 2014

RELATED PARTY TRANSACTIONS

The Central Bank of Kenya and the Board are related panres, performing connected duties of bank supervision and deposrt protectionrespectively. No trading is carried with the Central Bank. The following transactions however take place between the two organisations:

(a) Due to Central Bank ofKenya

(b) Directors'emolumentsandseniormanagemenaremuneration

Fees to directonRemuneration to senior management

Cash and balances held with Cenhal Bank of Kenya

20t4KShs'000

1t,911

5,30154,947

rfi2s

2014KShs'0O0

29,E76

2014KShs'000

449361,O25

4s96120L4

KShs'000

184,010

2014KShs'000

16,51516,515

33,030

2013KShs'000

21276

8,04657,087

783r9

2013KShs'000

37,fi7

2013KShs'000

336,46378,389

4l4,ESz2013

KShs'000

29,lEO

2013KShs'000

15,78015,780

31,560

(c)

(d)

(e)

(f)

(g)

million).

DEFERRED INCOME

Unamortized grant income

CASH AND CASH EQUIVALENTS

Treasury bills maturing within 91 daysfrom the date of placement (Note 12)Cash and bank balance

COMMITMENTS

(a) Capitalcommitments

Authonsed but not conffacted for

The Cental Bank pays some operating expenses on behalf of the Board. These are fully reimbursed.

The staffof the Board arc contrac$ally employees of the Central Bank but seconded o the Board. Salaries of these staff are met by theCentral Bank and fully reimbursed by the Board. In the year, salaries paid to staff by the Central Bank amounted to K$s 146-il4milhon (2013 - KShs 135.9 milhon).

The Central Bank is also the sponsor of the CBK Staff Pension Fund to which the Board contributes on behalf of employees sccondedto it from the Central Bank. In the year, the Board's contribution to the Fund amounted o KShs 10.98 million (2013 - KShs 9.1

million).

The Central Bank provides the Board with ofhce space and charges it rent. The Board also reimburses maintenance costs incurred bythe Central Bank on its behalf. In the year, rent and maintenance costs charged amounM o KShs 15.95 million. (2013 - KShs 13.2

15.

16.

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Cash and cash equivalents rncluded in the statement of cash flows comprise of the following statement of financial position amouns:

Capital commitments authorised relates mainly to office furniture, ofirce eqUipment, ICT project infrastructure costs, motor vehicle,godown sentry house and CCTV network connections.

(b) Operating lease commitments:

Falling due within one yearFalling due between one and f,rve years

18. R.ISKMANAGEMENT

Structurc and reporting

The Board of Drectors is responsible for the overall risk management approach and for approving the risk management policy andstrategies. There are other organs that monitor the assessment and management of risks within the Board including;

Audit Committee of the Board

The Audit Committee asqists the Board in the fulfillment of its oversight responsibilities. The Committee guides and monitors theimplementation of controls by the Board.

Deposit Insurance and Risk Management Section

The Board has an established Deposit Insurance & Risk Management Section that receives off-site information on deposits from mcmberinstitutions for analysis and works closely with Central Bank of Kenya to monitor the performance of the Banking industry.

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3rd October, 2014 THE KENYA GAZETTE 2681

Intcrnal Audit and Risk Management Unit

The operations of the Board are subject to internal audit by the Intemal Audit Unrt of the Deposit Protection Fund Board. The IntemalAudit Unit employs full scope audit approach in planning and carrying out its audit engagements. The business processes are assessedwith regard to business continulty procedures, physical safety, system safety, conformity to legal requlrements and regulations,sufficiency of human resources and information safety. In addition, the financial risks and reputation risks are also determined.

Controls that are designed to reduce these risks to acceptable levels are assessed in terms of sufficiency and effectiveness; addrtronalcontrols are recommended in order to increase effectiveness.

The main risks faced by the Board in respect of its principal non-derivative financial instruments are interest rate risk and liquidity risk.The directors review and agree on policies for managing these risks. The Board maintains a conservative policy regarding interest rate andliquidity risks. The Board does not engage in speculation in the markets. In addition, the Board does not speculate or trade in derivativefrnancial instruments.

The Board's principal financial instruments comprise investments held to maturity; cash and cash equrvalents; receivables; payables andaccruals and amounts due to related parties.

(e) Credit risk-

Credit risk is the risk of financial loss to the Board if a customer or counterparty to a financial instrument fails to meet itscontractual obligations, and arises principally from the Board's receivables, government securities and cash and bank balances.

The Board's exposure to credit risk is influenced mainly by the individual characteristics of each customer and lnvestment.

The Board establishes an allowance for impairment that represents its estimate of incurred losses in respect of receivables andinvestrnents. The mam components of this allowance are a specific loss component that relates to indivrdually significantexposures, and a collective loss component established for groups of similar assets in respe4t of losses that have been incurred butnot yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financialassets.

The carrying amount of financial assets represents thc maximum credit exposure. The maximum exposure to credit nsk at thereporting date was:

Fi

t

20L4KShs'000

1 1 I,908(102,345)

9,563

9,5561

10235;

20L4KShs'000

1o2,345-

10234s

2013KShs'000

109,430(102,34s)

7,085

5,342446442

l03,l4l

2013KShs'000

t04,t261.370

( 3,15r)

rc2e45

ReceivableImpairment losses recogrised in the year (Note 8(b)

The aging of receivables at the reporting date was:

Not past duePast due 0 - 30 daysPast due 3l - 90 daysPast due above 90 days

Balance at I JulyMade in the yearWrite backs

Balsnce at 30 June

111,908 109J7r

The movement in the allowance for rmpairment rn respect of receivables during the year was as follows:

i

I

(b) Market Risk

O Inlcrest tatc rkk nunagement

Interest rate risk rs the nsk that the value and cash flows of a financial instrument will fluctuate due to changes in marketinterest rates. Excess funds held by the L rarrr" are invested in Treasury bills and Treasury bonds.

The followrng table sets out the carqrrirl rraount by matlrrity, of the Board's financia.l instruments that are exposed tointerest rate risk:

2014l.

Investments held to maturity

Intcrest scnsitivity gepAt 30 June 2014

Elfective

intcrest rete

Uptolyear l-Syears 6-10years Over Total10 years

KShs'000 KShs'000 KShs'00O KShs'0O0 KShs'000

t0.8870 19,766,38'7 t0,785,237 t1,317,539 4,700,423 46,569,586

19,766,97 10,785?37 11317,539 4,700,423 46569586

2682 THE KENYA GAZETTE 3rd October, 2014

2013:Investments held to maturity ll 04vo 1,2,046,218 7,871,825 13,756,000 5,691,298 39,371,341

Interest sensitivity gapAt 30 June 2013 12,046,218 7 ,877 ,825 13,756,000 5,69L,298 39,371,41

The following table demonstrates the sensitrvrty to a reasonably possrble change in the interest rates, wlth all othervariables held constant, on the Board's surplus. The sensitivrty computations assume that financial assets malntain a

constant rate of return from one year to the next.

Effective Upto l year

interest rate KShs'000

Other financialliability

KShs'000

1-5years 6-l0years

KShs'000 KShs'000

KShs'000

46,569,586

2014KShs'000

2328,479

(2,328,479)

Held to maturity Total carrying value

Over Total10 years

KShs'000 KShs'000

2013KShs'000

r,968,567

(1.968.567)

(c)

Effect on surplus for the year of a +5Vo changein interest ratesEffect on surplus for the year of a -57o changein interest rates

(iil Cunency risk

The Board operates wholly within Kenya and its assets andtransact rn foreign currencles.

Liquidity risk management

(d)

liabrlrtres are reported in the local culrency. It does not

Liquidrty risk is the nsk that the Board wrll encounter difficulty rn meeting obhgations from its financial liabilities. The Board'sapproach to managing liqurdity ls to ensure, as far as possible, that it will always have sufficrent hquidity to meet its liabilitieswhen due, without incurring unacceptable losses or nskrng damage to the Board's reputatron. In the course ofits operattons theBoard invests its capital in forms that vary rn liquidity ranging from govemment securities that are readily convertible and sundryreceivables. Simultaneously it carries current habilities rn form of provisions for protected deposits, sundry payables and related

party habilities. The entity matches its current assets to the current liabrlities falling due to mitigate the risk of low liquidity.

The Board's hnancial liabilities amount to KShs 29,877,000 (2013 - KShs 28,272,000) and are all short term.

Fair value

The farr value of financial assets and liabrlrtres ls the same as the carryrng amounts as shown in the statement of financialposition:

20142

Financial assetsGovernment securitiesInvestment held for saleCash and bank balances

Recervables

Financial liabilitiesAmounts due to group companresPayabJes and accruals

20132Financial assetsGovernment securitiesInvestment held for saleCash and bank balances

Financial liabilitiesAmounts due to group companiesPayables and accruals

Loans andreceivablesKShs'000 KShs'000

46,569,586100

1,025

9,563

Fair ValueKShs'000

46,569,586100

1,o25

9,56346.569.s86 46,580,274 46,580,274

I

II

I!

i

IIII18.91 I

10.96618,91I10,966

1 8,91 1

10,966

29,E77 29,877 29,877

39.3'71,341_ 39,37t,341100

78,389

39,371,341100

78,3t939.371.341 39.449,830 39.449.830

21,2'166.996

21,2'766,996

2t,2766,996

28.272 28,272 28272

Capital management

The pnmary objectives of the Board's capital management are to ensure that the Board maintains healthy capital ratios rn order tosupport lts busrness and to maxrmrze the value for the rnsured deposrtors in member institutrons. The Board manages its Fund andmakes adjustments to lt, as per the requirements of the Banking Act. The total accumulated Fund as at 30 June 2014 was KShs46,584 milhon (2013 - KShs 39,464 million).

(e)

3rd October, 2014 THE KENYA GAZETTE

CONTIGENT LIABILITIES

Litigation

Mr Ajay Shah (former Managrng Director of Trust Bank Lrmlted) hled a case in 2002 clarmrng general damages and specral damagesamounting to KShs 144 n.rrlhon against Trust Bank Limited (In Liquidation) and the Board on allegauons of defamation and publicationof malicious false statements. The suit is pending hearing. No provision has been made in the financial statements because, in the opinionof the directors, the clarm rs unhkely to succeed and DPFB rs sued as the Lrquidator ofTrust Bank Ltd (IL). Therefore, m case.ludgmentis entered against DPFB, the costs shall be pard by Trust Bank Ltd (IL).

AMOUNTS HELD ON BEHALF OF THIRD PARTIES

As at the year end. the Board ln rts role as a liquidator, held an amount of KShs 69.5 million in an escrow account on behalf of thirdparties, pending the completion of the transactions in accordance wlth contractual agreements.

SUBSEQUENT EVENTS

The Kenya Deposit Insurance 4ct,2012 ("The Act") signed into law by the presrdent on May 9th 2012, estabhshes the Kenya DepositInsurance Corporation ('KDIC") to replace the Deposit Protection Fund Board. The Act was granted a commencement date of July 1,2O14. The objectives of KDIC is to provide deposit insurance scheme for depositors of member institutions , monitor the soundness ofinstitutions through analysis, and undertake problem bank resolution through recervership, hqurdatron and windrng up of collapsed bankrnstrtutlons.

APPENDIX

COMMERCIAL BANKS AND OTHER FINANCIAL INSTITUTIONS ASSESSED CONTRIBUTORS FOR THE YEAR ENDED 30JUNE 2014

COMMERCIAL BANKS

2683

19.

20.

21.

1.

2.J.

4.5.

6.7.8.

9.10.

11.

t2.13.

14.15.

16.

t7.18.

19.

20.2t.22.23.24.25.26.2128.29.30.31.32JJ.

34.35.36.31.38.39.40.4t.4243.44.

African Banking Corporation LimitedBank of Africa Kenya LimitedBank of Baroda Kenya LimitedBank of IndraBarclays Bank of Kenya LimrtedCFC Stanbic Bank LimitedCharterhouse Bank Limited (under statutory management)Chase Bank Kenya LimitedCitibank N ACommercral Bank of Afnca LimitedConsohdated Bank of Kenya LrmrtedCo-operatlve Bank of Kenya LimitedCredit Bank LimitedDevelopment Bank of Kenya LrmitedDramond Trust Bank of Kenya LimrtedDubar Bank Kenya LrmrtedEcobank Kenya LrmrtedEquatorral Commercral Bank LrmrtedEquity Bank LrmrtedFamily Bank LrmrtedFidelrty Commercral Bank LrmrtedGuaranty Trust BankFrst Communtty Bank LlmrtedGiro Commercral Bank LimrtedGuardian Bank LimitedGulf African Bank LimitedHabibBankAG ZurichHabib Bank LrmitedImperial Bank LimitedI&M Bank LimitedJamii Bora Bank LtdKenya Commercial Bank LrmitedK-Rep Bank LrmitedMiddle East Bank Kenya LrmrtedNational Bank of Kenya LrmitedNIC Bank LimitedOriental Commercial Bank LimitedParamount Unrversal Bank LimitedPnme Bank LrmrtedStandard Chartered Bank of Kenya LimrtedTransnatronal Bank LrmrtedUBA Kenya Bank LtdVictona Commercral Bank LrmrtedHousing Frnance Company of Kenya Lrmrted

THE KENYA GAZETTE 3rd October,20l4

MICR,O HNANCE INSTITUTIONS

l. Faulu Kenya2. Kenya Women Finance Trust3. SMEP DTM4, REMUDTM5. UwezoDTM6. RafikiDTM7. SumacDTM8. CenturyDTM9. U&IDTM

PRINTED AND PIJtsLISHED BY TTIE GOIERNMENT PRINTER. NAIROBI

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