CBK tightens control of bank agents

The banking sector regulator has been given powers to monitor activities of commercial bank agents to tighten oversight of the operators previously under the watch of appointing institutions.

The banks will also be held legally liable for the actions of the agents, according to new regulations that could increase the costs of operating the remote outlets.

Agents are hired by commercial banks to provide basic banking services such as account opening, making deposits and withdrawals.

“We did not require banks to be liable for the acts and omissions of their agents hence exposing their customers who use these services. In order to correct this anomaly, I propose to amend the Banking Act to expressly make banks liable for the acts and omissions of their agents in relation to banking business,” said Mr Githae in his Budget statement last Thursday.

In 2010, the government amended the law to allow banks to use remote outlets as agents in an effort to cut the huge costs associated with opening of new branches in areas that do not have access to banking services.

Audit firm, PricewaterhouseCoopers (PwC), said that the new regulations would promote stability in the sector. PwC said the amendment would give Central Bank of Kenya (CBK) powers to extend its supervisory role to monitoring activities of agents.

“The proposal seeks to protect customers and is likely to lead to increased costs of the agency banking model as banks will have to monitor their agents to ensure they perform to the respective banks’ standards,” said the financial consulting firm.

Commercial banks that have employed the agency banking model include Equity Bank with 3,234 agents as at end of 2011, Co-op Bank with 1,800 agents and KCB with more than 2,600 agents.

Other commercial banks that have embraced the agency model include Consolidated Bank, Chase Bank, First Community, Citibank, Transnational Bank, Family Bank and DTB.

In a past interview, the CEO of Equity Bank, James Mwangi, had said that one of the challenges the bank faced was reputational risk as persons who dealt with the agents assumed they were dealing with the bank and expected the same level of customer service.

He, however, said that the client funds were always safe as the system rode on the bank mobile phone platform, ensuring that a confirmation message was sent out to a client on completion of a transaction.

The CEO of Co-operative Bank, Gideon Muriuki, said that banks were going out for “persons of integrity” in the society who had the trust and confidence of the public.

Requirements of being an agent include getting a certificate of good conduct from the police. The Central Bank of Kenya’s annual survey for 2012 shows that eight commercial banks contracted 9,748 active agents as at the end of the year, with their total transactions amounting to Sh43.6 billion.

The agents handled 978,529 account opening application forms, helping to increase the number of people accessing financial services. Last year, the number of deposit accounts rose by 1.4 million to 14.2 million.

Apart from cash transactions, 43,398 bills valued at Sh113 million were paid through the agents, 1.1 million balance enquiries were made and 6,413 mini statements issued.