Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | DIANA NGILA | NMG
A third of Kenyan banks breached banking laws and rules last year, the regulator said Wednesday, exposing them to regulatory penalties.
The Central Bank of Kenya (CBK) flagged 13 banks for non-compliance with various rules compared with 12 lenders in 2019 largely due to failure by owners to raise fresh capital in a depressed economy buttered by Covid-19 shocks.
The banking regulator cited heightened losses in the 39-bank industry largely on loan defaults for depleting core capital reserves.
“Most of the violations were in respect to breach of single obligor limits mainly due to a decline in core capital in some banks that have continued to report losses,” the CBK, which does not usually disclose the errant banks, wrote in the Bank Supervision Annual Report 2020.
Nine banks lent more than 25 percent of core capital to a single borrower in breach of Section 10(1) of the Banking Act — a violation technically known as breach of single obligor limit— a number which was steady compared with 2019.
Three banks operated below minimum core capital of Sh1 billion last year in an environment where smaller banks have struggled to attract fresh cash injection, unchanged from 2019.
Base capital for Spire Bank, First Community and Consolidated Bank fell below Sh1 billion, the CBK report shows.
While Spire and First Capital have breached core capital rule for the second year in a row, state-owned Consolidated has replaced Jamii Bora which was in breach of capital adequacy requirement in 2019. Jamii has since been acquired, recapitalsed and rebranded to Kingdom Bank by Co-operative Bank.
Two banks were guilty of lending more than 20 percent of core capital to a single borrower compared with five in 2019, one bank exceeded total insider borrowing limit of 100 percent of core capital compared with four in 2019.
One bank each failed to ensure chief finance officer is a member of ICPAK, every board member attends at least 75 percent of meetings and limit shareholding by chief executive or a senior manager to five percent.
Five banks violated the rule which limits investment in land and building to 20 percent of core capital, the CBK report shows, reduced from seven in 2019.
Banks which violated the rule restricting foreign exchange exposure at 10 percent of core capital halved to two, while those which failed to maintain a minimum liquidity ratio of 20 percent of deposits also halved to two.
Further, one bank each failed to display a copy of latest audited financial performance statement in a conspicuous position in its branches, violated the restriction on interest recoverable on defaulted loans “to the principal owing when the loan becomes non-performing”.
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