The Central Bank of Kenya building in Nairobi. PHOTO | FILE
The Central Bank of Kenya should keep disciplinary actions taken against commercial banks private in order to avoid erosion of public confidence in the sector and dimming a lender’s chances of recovery, a new survey shows.
Fund managers, bankers and investors interviewed by research firm HTM Capital while supporting the current clean up in the sector warned that public condemnations were doing more harm than good.
“The application has been too public and has the appearance of being ad-hoc or arbitrary,” said one of those surveyed by HTM Capital.
Questions have been raised on the handling of the recently collapsed banks, especially Chase Bank on whether the CBK was too quick to pull the trigger.
The CBK has cited negative information on social media as a key reason for Chase Bank’s collapse. Critics have pointed out that the social media buzz was fuelled by the republication of the bank’s financial statements — showing that they were qualified by the external auditor — in line with CBK’s demand.
CBK governor Patrick Njoroge has said his responsibility was to protect depositors’ money, which is the principle that has guided his decisions.
The regulator’s decision to investigate all insider loans in the sector which was picked up by the media was also seen as a red flag of governance issues being widespread in the sector.
The National Treasury has sought to be consulted before the CBK closes a bank, signalling its position that the regulator needs to be checked even as it strengthens the sector.
The Treasury has, however, supported recommendations that the CBK names banks not compliant with regulatory requirements in its supervisory reports.
Previously, the CBK has stated the number of banks that did not comply with a specific requirement without disclosing their names which was seen as exposing the customers who were basing their decision on part information.
Analysts also criticised Finance secretary’s proposal of increasing capital requirement for the sector in a bid to push for consolidation among the lenders.
The Treasury is proposing increasing the minimum core capital requirement to Sh5 billion from the current Sh1 billion over a three-year period.
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