Banks face stricter CBK supervision in the New Year

Central Bank of Kenya (CBK) has fired a warning shot at commercial banks that it will impose a more stringent supervision regime next year as it tries to claw back public confidence severely eroded after the closure of two banks this year.

The banking regulator has sought help from the International Monetary Fund to strengthen its supervision department, whose credibility has come under much scrutiny.

The National Treasury also received funds from the World Bank to hire a consultant to advise on improving banking supervision in the country within six months.

“We see next year as the year of transition when we shall more aggressively supervise banks,” said Central Bank governor Patrick Njoroge in his year-end briefing.

After wobbling for close to two years, Dubai Bank became the first lender to be closed in September for contravening several banking regulations, including failing to honour its debts.

A month later mid-sized Imperial Bank was abrubtly closed for what CBK termed unsafe banking practices, sending ripples across the financial sector.

Imperial Bank was closed barely a month after it raised Sh2 billion through a corporate bond approved by CBK and the Capital Markets Authority. The approvals were assumed to have been preceded by an onsite surveillance of the bank.

“It is intended that part of the proceeds of this credit be applied to payments under the contracts for review of bank supervision surveillance process, procedures and operations to be implemented over a period of six months,” said National Treasury in a statement.

READ: Judge blames CBK for Dubai Bank collapse

Imperial Bank had understated its loan book and customer savings by Sh38 billion, allowing it to give unsecured loans to friends and businesses associates of former chief executive Abdulamek Janmohamed.

The matter only came to light when the board of directors reported to CBK following his death.

Analysts expect commercial lenders to set aside higher loan provisions during the year as CBK becomes more stringent.

“We expect enhanced risk-based analysis and supervision for commercial banks and indeed all financial institutions in Kenya by considering factors other than financial ratios,” said Cytonn Investments.

Central Bank has said it will also be firm in collecting penalties from lenders who do not comply with any of its guidelines to ensure discipline returns in the industry.

Gerald Nyaoma was reassigned to head the supervision department following the demise of Fredrick Pere. He has been tasked with recruiting more officers with a bias on experienced bankers and those with an IT background.

The regulator is also retraining its existing officers and rewriting its HR policies in an effort to retain quality staff.