Scooby wrote:Scubidu,
Kindly provide us with more details so that I could give you a specific response to your concern. Otherwise, I'll try to guess where you are coming from...
Prior to the financial crisis, it was abit hard for an insitution to transfer its fixed income securities from one category to another as it would be punitive for them.
During the fincial crisis, this rule was kinda relaxed at the request of the G20 leaders who thought that such a move would ease the credit crisis. However, it made things worse as it contributed to the liquidity cruch.
Hence,I will be more worried if the transfer was from AFS or HFT to the Held to Maturity category as they could be attempting to avoid recongising significant unrealised losses in their books.
Hope this helps
Regards
@scooby. polee in getting back to you late. Details are in Coop Q1 and H1 results show shifts in its bond portfolio, though i'm told they were accounting errors. They didn't book losses like SCBK did in H1. Didn't know there was a global dimension to the shift in fixed income assets ... that's interesting. Do you have some source material I can read on that?
Within the Kenyan context the shift has been from AFS/HFT to HTM for the reasons you've mentioned which is why bonds between 10-15 years have seldom traded. Last I checked they were down 30% YTD. So realizing such a losses may result in errosion of bank equity. However, none have reflected this except SCBK locally, which I wonder whether it depends on the accounting policies adopted.
Must you recognise unrealized losses every quarter or is it annual? I'd think although these losses aren't in the p&l they should have eroded reserves.
Also what's your take on cap bond pricing on the NSE to limit the distortions repos aka buybacks have on the yield curve?
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