CBK indefinitely suspends licensing of new banks

Central Bank Governor Patrick Njoroge. The CBK has suspended the licencing of new banks indefinitely but says any ongoing discussions on planned mergers and acquisitions would not be affected by the order. PHOTO | NATION MEDIA GROUP 

In Summary

• This comes two months after the closure of the 28-branch-strong Imperial Bank over banking malpractices.
• The CBK said the prohibition order would be considered at a later date but added that the order did not stop resolution of existing banks.
• The Imperial Bank saga threw the industry into uncertainty, with Kenyans oholding large sums of money in small banks transferring it to bigger banks.
• Currently, Kenya enjoys a vibrant banking sector, with 43 licensed banks.

By JAMES KARIUKI
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The Central Bank of Kenya (CBK) has suspended the licensing of new banks indefinitely.

The move, which takes effect immediately, comes two months after the closure of the 28-branch-strong Imperial Bank over banking malpractices.

In a statement to the press, CBK said the prohibition order would be reconsidered at a later date but added that the order did not stop resolution of existing banks.

It said that all ongoing discussions on planned mergers and acquisitions by local or foreign banks were permitted and would not be affected by the order.

The CBK has been in the limelight recently following the closure of Imperial and Dubai banks, which are currently being managed by the Kenya Deposit Insurance Corporation.

CBK Governor Patrick Njoroge had earlier said that Imperial Bank directors had expressed interest in recapitalising the bank to facilitate its reopening later this month.

PREVENT DEPOSITS LOSSES

He, however, warned that strict measures would be in place to prevent similar incidents, including clients’ deposits being unilaterally used for other non-core banking activities leading to losses.

The Imperial Bank saga threw the industry into uncertainty, with Kenyans holding large sums of money in small banks transferring it to bigger banks.

Family Bank Chief Executive Peter Munyiri called the fund transfers unnecessary, saying even big banks could also collapse due to poor management.

He added that Kenya needed stringent regulations to monitor use of clients’ funds.

This, he said, would help restore integrity in the sector that for decades has seen its image marred by deep-rooted malpractices that saw clients’ funds and public funds vanish.

Currently, Kenya enjoys a vibrant banking sector, with 43 licensed banks, some of which have gone regional, opening branches in Uganda, Tanzania, South Sudan, Tanzania, the Democratic Republic of Congo and Rwanda.

The CBK governor has assured depositors in the two banks currently under receivership that their funds are safe.

Kenya also enjoys a vibrant micro-finance subsector, where several of the institutions have been upgraded into deposit-taking facilities, with organised groups running savings and credit societies across the country that control nearly half of the deposits business.