In their report, Cannon Asset Managers gave strong ratings to Standard Chartered Bank and National Bank of Kenya because the two banks disclosed the losses from trading their bond portfolio. This was reflected in their profit and loss statement where Stanchart and NBK booked losses in their profit and loss account.

NIC Bank, Barclays and Co-operative Bank received a medium score because the losses in their bond portfolio were charged against the cash they hold in their reserve of profits from previous years. The result is that these three banks overstated their current profits and distorted the picture of their earnings power by offsetting their trading losses against profits of yesteryears.

However, the three banks did not discuss the extent of their losses in their half-year 2011 announcement.

“If they are passing the losses through the reserves, then they should be adequately provided for,” said Daniel Ndung’u, a portfolio manager at Cannon Asset Managers. “It might not be a straightforward thing to determine unless you get more information on their trading books, like at which yield they bought the bonds. Even in annual reports, you cannot get the information.”

NIC Bank declined to comment. BBK said their bond portfolio is not affected because they hold most of their bonds to maturity. Co-op Bank did not respond to questions from The EastAfrican.

I&M, whose shares trade over the counter, KCB, Equity Bank and DTB Bank received a poor score because the adequacy for provisions on their losses from trading in bonds could not be assessed.

Equity and DTB were noted to have changed their trading books from “held to maturity” which cushions them against fluctuations in interest rate movements. Equity Bank did not respond to questions from The EastAfrican.

I also seem to remember Equity overstated their interest income and understated other income. They reflected it in the December audited results. I wonder whether the results from Q1 and H1 reflect this.