Twelve banks went against the Central Bank of Kenya (CBK) guidelines and Banking Act in 2023, with the reported institutions breaching core capital rules among other guidelines, the regulator said in its annual bank supervision report.
The number of institutions in violation were however less by one in 2023 compared to 2022. CBK also says most of the violations were with respect to breach of the maximum amount a bank is allowed to lend to a single borrower due to depreciation of the Kenya Shillings against the US Dollar.The specific incidences of non-compliance noted as at December 31, 2023 include insider lending, prohibited business, violation of capital adequacy requirements, corporate governance, liquidity management and single obligor limit.Two commercial banks were in trouble with the regulator for failing to maintain the minimum core capital required of KSh1 billion, a revelation which comes as the government proposes to raise the minimum core capital to KSh10 billion.
While presenting the 2024/25 budget, ex-CS National Treasury and Planning Njuguna Sospeter Ndung’u said the plan to raise the capital is meant to build stronger banks, and increase their muscle to finance big projects.
“This is intended to strengthen the resilience and increase the bank’s capacity to finance large scale projects while creating sufficient capital buffers to absorb and withstand shocks posed by the continuous emerging risks associated with adoption of technology and innovations as institutions expand.”
In 2023, CBK found four commercial banks in violation of law and guidelines on capital adequacy due to failure to meet various statutory requirements touching on the total capital to total risk weighted assets ratio of 14.5 percent, core capital to total risk weighted assets ratio of 10.5 percent, and core capital to total deposit ratio of 8 percent.
CBK says three commercial banks were in violation of guidelines on prohibited business for investing more than 20 per cent of the core capital in land and buildings. Five commercial banks were in violation of guidelines which restricts aggregate credit facilities to all large exposures to not more than 5 times of the institution’s core capital.
On corporate governance, one commercial bank was in violation of guidelines which require commercial banks to have at least five directors and at least three fifths should be non-executive directors.
One bank was in violation on the banking act which restricts ownership of an institution to any one person to a maximum of 25 percent.
“Nine commercial banks were in violation due to breach of the single obligor limit of 25 per cent of core capital while three banks were in violation due to breach of the single insider borrower limit of 20 per cent of the core capital. Two banks were in violation of the Banking Act due to breach of the total insider borrower limit of 100 percent of the core capital,” says CBK.
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