Central banks in standoff over control of regional lenders

Uganda and Tanzania’s banking sector regulators are opposed to the full control of Kenyan bank subsidiaries by their Nairobi parent firms.

A report by the World Bank released on Monday said most banks with branches in the region were yet to achieve full integration, with resistance from bank supervisors pointed as the major hindrance.

“Major impediments to attaining full integration cited by banks include resistance from bank supervisors-particularly in Tanzania and Uganda, who are averse to banks under their jurisdiction, being managed by Kenyan parents,” reads the World Bank report titled Walking on a tight rope.

The revelation comes at a time that the government and Central Bank of Kenya have been pushing for consolidated reporting of banks with regional subsidiaries on fears that economic shocks in any of the subsidiaries would impact on the parent company.

“Our commercial banks have continued to extend their presence in the region, however, the activities of their subsidiaries have a direct impact on the safety and stability of our banks. There is need, therefore, to focus more on the transactions of their related parties,” said Njeru Githae, Kenya’s Finance minister during his Thursday budget statement.

Other countries
Seven Kenyan banks have opened operations in Uganda and six had opened operations in Tanzania as at end of last year. NIC Bank is in the process of raising capital to venture into Uganda.

There are also three Kenyan banks in Rwanda, two in South Sudan and one in Burundi.

However, there are no banks from the other countries that have expanded into Kenya. Bank of Kigali from Rwanda has declared intentions of setting up a representative office in Nairobi.

The minister proposed amendment of the Banking Act to ensure regional banks present consolidated financial statements and declare major transactions by the subsidiaries which were likely to impact on their financial position.

“This is a welcome change, especially to banks contemplating regional expansion as the current legislation was not structured to support banking groups,” said audit firm PricewaterhouseCoopers.

The Kenyan government however acknowledges that it would be difficult to implement the consolidated supervision and is seeking the cooperation of the other regulatory bodies in the region.

“This will hinge on information sharing and co-ordination between the CBK and other regulators, particularly in the region where Kenyan banks are expanding their footprints,” said Mr Githae.

The regulators have been negotiating for the set up of a common monetary body under the East African Community. Other impediments that the regulators will haggle over include regulatory requirements, taxation and capital movement policies.

Last year the subsidiaries, having opened a total of 223 branches, registered profits before tax of Sh2.3 billion.