@Selah: Now we are getting somewhere...

Agreed - the income from bond trading has increased by a big margin from sh64m to sh2b. However, this still remains at around 10% of total income [sh22b].

Interest income from securities is sh2.3b... but compared to the sh11b earned from interest on loans and advances, we cannot truthfully say that "most of the income is from g-secs, can we?

@Selah.. Now you've changed the argument. Your initial argument was the equivalent of saying that Safaricom earns MOST of its revenue from M-PESA as opposed to pre-paid calls and providing as evidence the fact that M-PESA has grown faster than pre-paid calls.

Now that you and @Kizee could not provide concrete support for your argument, you're now saying that M-PESA is the key strategic weapon for the future and not pre-paid calls. Those are two very different arguments (insider or not!)

My 2cents.

From the article

The government, through its budget deficit, has significantly contributed to the banking industry’s profitability and encouraged “lazy banking”. “Lazing Banking” is an evocative phrase that that was first coined by an Indian central banker in 2002 to describe a situation where banks made easy money by parking their funds in risk-free government securities beyond reserve requirements rather than lending to the more productive sectors of the economy.

The governor is powerless but not cause of lazy banking but because he has no autonomy to run things the way he wants to. If they don't facilitate lazy banking the budget deficits will be more expensive. If he does savings and credit may likely be misallocated or distributed inefficiently.

I believe the problem lies in the budgeting of expenditures. It creates a situation where the Treasury will tell us the domestic borrowing programme will have to be raised by 14% but also plans expenditure cuts in H2 (poor planning/budgeting).

So raising the CBR in the midst of higher inflation raises bond rates which is necessary for lazy banking, but also creates higher liquidity risk which effects private sector lending. Lowering the CBR also promotes lazy banking as players chase rising bond prices and our cartel like banking structure creates a situation where no savings are passed through to borrowers. CBK is powerless to contain this cartel.

So is there a solution to this problem? Is it arming CBK with better tools or giving it more autonomy? or something else?

@Mukiha
Therein lies the rub…..you’re talking about “bond trading income” (which is not necessarily the only component of Other Income btw) you’re looking at the price returns & perhaps fees & commish…....TOTAL return factors in both price return AND INCOME(Interest or Dividends) for a PORTFOLIO OF SECURITIES….. I know you know what I mean.

Still, if in doubt, kindly follow the links below for guidance:
http://www.investopedia....terms/t/totalreturn.asp
http://en.wikipedia.org/wiki/Total_return

Post-Damascus, you will now notice that SCBK’s G-Sec PORTFOLIO contributes more than 20% of Operating Income and more than 44% of Interest Income.

And here’s another interesting fact from Equity. Go over to 5b Credit risk – Notes to the financial statements: and look at the sector concentration for the bank’s assets … Then flip over to Note 21 for investment securities

Figs In MM
Consumer: -- 31,970
Micro Credit: -- 8,702
Agric: -- 2,598
SME: -- 17,083
Corporate: -- 14,294
G-Sec: -- 31,911

This backs up what @Scubidu is saying. Also, these figures should show you how come G-Secs contribute that much....

Kenyan Banks will be tamed when CBK pushes them into the secondary market by extending the bidding to Large Multinational Banks(read American banks) with deeper pockets and at lower rates