EAC central banks harmonise rules ahead of monetary union

• A draft convergence criteria based on international best practices as well as feedback from players in the banking industries of member countries has been developed.
• Points of divergence in the region’s banking industry include minimum capital requirement, shareholding structure and licensing requirements.
• Commercial banks in the region have already formed an umbrella body, East African Bankers Association, to lobby for common interests in the market.

Banking industry regulators in the East Africa Community (EAC) are harmonising their supervisory rules as they prepare for a monetary union.

Central Bank of Kenya governor Njuguna Ndung’u on Wednesday said the process has identified key aspects of divergence in the five member countries that require convergence.

“EAC central banks are harmonising their supervisory rules and practices while benchmarking to global standards. This will not only facilitate integration, but will also position the region as a financial hub,” said Prof Ndung’u.

He said that a draft convergence criteria based on international best practices as well as feedback from players in the banking industries of member countries has been developed.

Points of divergence in the region’s banking industry include minimum capital requirement, shareholding structure and licensing requirements.

READ: EAC states differ over criteria for monetary union

Convergence will allow single licensing of banks across the region, an issue that had been cited by banks with regional presence as hampering operational integration.

“It is also important to build up regionally compatible financial infrastructure. Kenya, Uganda and Tanzania have already made substantial progress in integrating their real-time gross settlement systems,” said World Bank in a recently released report on EAC integration.

Rwanda and Burundi are, however, lagging behind and need to align their payment systems.

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The report pointed out that Kenyan banks with branches in the region had not fully integrated their operations due to resistance from supervisors, particularly in Tanzania and Uganda.

The government and CBK have been pushing for consolidated reporting of banks with regional subsidiaries on fears that economic shocks in any of the subsidiaries would affect the parent company.

EAC is eyeing a monetary union and introduction of a single currency following the launch of the customs union and common market.

The deadline for its implementation is December this year, but the countries are still negotiating on the governing protocol having agreed on 49 of the 86 articles.

Commercial banks in the region have already formed an umbrella body, East African Bankers Association, to lobby for common interests in the market.