QUICK REVIEW OF HOUSING FINANCE FINANCIAL STATEMENTS 2012

QUICK REVIEW OF HOUSING FINANCE FINANCIAL STATEMENTS 2012 By CPA Michael Wanjala M., 5633 Feb 20th 2013, Nairobi Housing Finance has published the financial statements for the period ending 31st December 2012. The financials were audited by KPMG and received un-qualified opinion. This is a good practice, those reviewing the financials have the benefit of assurance since a third party has reviewed the financials and indicates that they largely represent a true and fair view of the results of transactions and events in Housing finance for the period. This is better than NHIF which presented un-audited statements. My thoughts on the accounts are follows; Housing fails to disclose the operations and nature of its subsidiary in the message from the directors. This is a non-forgivable omission, since investment in subsidiaries represents delegated stewardship by management hence the need for full disclosure. Surprisingly for me the cash balances, government securities are the same between the company and the group. How this is possible I still do not know. Loans and advances to customers can be the same between the company and the group on the assumption that the subsidiary is not in the business of lending. This further reinforces the need for a sentence on the operations of the subsidiary. It should be noted that in the period, housing finance increased its investment in the subsidiary from KShs 130 million to KShs 255 millions. Interest income dropped by 46% in the year, the company also significantly paid more interest on customer deposits from 3 billion in 2011 to 5 billion in 2013. Again another matter on which we need further clarification in show group staff costs can be less than company costs in 2011. There is need to review the full financials together with the notes and basis for consolidation in order to arrive at better understanding of this reports. I am again at pains with the payments to Directors; Directorship in our country seems to be gobbling more resources than it should lead to serious governance challenges. When viewed in the context of agency problem between management and shareholders one begins to appreciate the import and impact of huge payouts to directors. Directors are shareholder custodians and the more the payments they receive the more they become more like staff and hence play less of their role as guardians on behalf of shareholders. KShs 23 million is too much; it translates to 2 million per month. With an operating income of 2 billion there is no better way to put this, the board is being overpaid. Compare with NHIF that has an operating income of 6 billion and spends 2.75 million on its board each month. Another area of concern is the items lumped together as “other operating expenses”. There is nothing wrong with such categorization only that when the amount is significant as 345 million then the grouping may be an attempt to conceal material items. My judgment of significance is based on a comparison with staff costs, the item “other expenses in 50% of staff costs. I must laud NHIF for using the correct / appropriate term “staff costs” NHIF still terms them as personnel costs, even the HRM profession no longer uses the term “personnel”. Finally, there is a drop in the liquidity ratio for the company from 36 to 29%. This is not necessarily a bad thing, it could reflect better cash management and in any case it is above the statutory requirement of 20%. At the time of penning this article, housing finance was yet to deposit their full year financials on their website at www.housing.co.ke. CPA Michael Wanjala M., 5633.