Board must restore stability in banking

Kenya Power customers queue to settle bills at Electricity House in Nairobi. PHOTO | FILE 

In Summary

• The board has the mandate to formulate policies, except monetary policy, which at is done by a separate committee. It plays an oversight role in the bank’s financial management and strategies, reviews the bank’s performance, and supervises the governor.
• In the absence of the board, Governor Patrick Njoroge has made some unilateral decisions which, although dictated by the exigencies of the day, have raised jurisdictional questions. Key among them was the placement of three banks under statutory management.

By EDITORIAL
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President Uhuru Kenyatta has finally gazetted the board of directors of the Central Bank after a two-year hiatus in the organisation’s management.

The gazettement was long overdue. The lesson here is that regulations are required to guide the process of board appointments to guard against whimsical decisions and delays.

The board is a fairly recent creation at the bank and was necessitated by the desire to streamline governance structures. Previously, the bank operated without an oversight organ, creating a powerful governor with sweeping powers, which he sometimes used to act outside the provisions of banking regulations.

The board has the mandate to formulate policies, except monetary policy, which at is done by a separate committee. It plays an oversight role in the bank’s financial management and strategies, reviews the bank’s performance, and supervises the governor.

In the absence of the board, Governor Patrick Njoroge has made some unilateral decisions which, although dictated by the exigencies of the day, have raised jurisdictional questions. Key among them was the placement of three banks under statutory management.

The new board clearly has its work cut out for it. The banking sector is suffering a crisis of confidence. First, the near-collapse of some banks that forced the Central Bank to place them under statutory management created volatility in the market.

Second, the new interest regime is beginning to impact adversely on banks, some of which have sent out signals of declining profits. Hundreds of jobs have been lost or are threatened. A crisis in the banking sector has a serious ripple effect on the economy, hence the urgency to re-establish stability.

The board will have to push for policies and strategies that encourage stability in the industry and restore public confidence.

The laws and regulations governing the Central Bank need to be revised to clearly define the processes and timeliness for appointing directors. The new board must hit the road running