Central Bank of Kenya Governor Patrick Njoroge at a meeting with
commercial banks' chiefs over interest rates in Nairobi on August 10,
2016. PHOTO | SALATON NJAU.
By CHARLES MWANIKI
In Summary
- The new guidelines also give the CBK a say on the amount of capital held by banks with regional operations in a move that may see large lenders seek additional funding.
- Under the current model of regulation, banks are required to hold the same core capital and ratios irrespective of size and target market, and also without consideration of additional factors such as their internal management, stress testing and operating environment.
- The tighter regulation of banks has come into place as a result of the troubled run of the sector between 2015 and 2016 when three lenders collapsed on, among other reasons, poor corporate governance and oversight.
Central Bank of Kenya (CBK) has directed lenders to
provide comprehensive reports of their revised business models by April
as it sets in motion a risk-based approach to banking regulation.
The CBK had issued a circular back in November informing
lenders that they would be required to hold capital consistent with
their risk profiles and business strategies and asked them to review
their models to fit the new approach.
The new capital management approach, technically
referred to as Internal Capital Adequacy Assessment Process, also covers
governance, organisation of the institution’s business and allocation
of capital against risk.
On Tuesday, CBK governor Patrick Njoroge said some
of the banks that were reporting losses and were also on the threshold
in terms of meeting regulatory ratios, had become more aggressive in
revising their business models to fit in with the reality of the
regulated interest rate environment.
“We have asked them to provide us with their
revised business models, which should have been discussed and ratified
by their boards and shareholders by April,” said Dr Njoroge.
The new guidelines also give the CBK a say on the
amount of capital held by banks with regional operations in a move that
may see large lenders seek additional funding.
Core capital
Under the current model of regulation, banks are
required to hold the same core capital and ratios irrespective of size
and target market, and also without consideration of additional factors
such as their internal management, stress testing and operating
environment.
The tighter regulation of banks has come into place
as a result of the troubled run of the sector between 2015 and 2016
when three lenders collapsed on, among other reasons, poor corporate
governance and oversight.
Imperial Bank had for instance been headed by the same chief executive, Abdulmalek Janmohamed, since formation.
He was said to have been the mastermind of massive fraud leading to its fall.
Dr Njoroge, however, said the sector was still
robust in terms of capital level and ratios last year, indicating
resilience even with the shocks that faced it, including the rate
capping law.
He said the sector’s total capital had increased by 12.2 per cent and the asset base by 7.6 per cent last year.
The average liquidity and capital adequacy ratios
stood at 41.4 per cent and 18.7 per cent respectively in December,
against minimum requirements of 20 per cent and 14.5 per cent
respectively.
On the credit side, the governor said that the latest credit
officers’ survey done during the last quarter of 2016 — yet to be
published — will show that the credit officers expect demand for credit,
level of non-performing loans and credit standards will remain
unchanged this quarter.
They also indicated that they will increase efforts
to recover non-performing loans this year, which would improve the
quality of bank books.
cmwaniki@ke.nationmedia.com
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