Central Bank, IMF to step up cross-border banks supervision

The International Monetary Fund (IMF) is working with the Central Bank of Kenya to have individual supervisory units for banks with significant cross-border operations by next year.

The launch of the units – dubbed supervisory colleges – is intended to improve monitoring of cross-border operations of the banks to minimise associated risks such as money laundering, avoidance of a money trail and terrorism financing.

The move is being made against the rapid expansion of the Kenyan banking industry in the past 10 years in the region especially in Uganda, Tanzania, Rwanda and South Sudan.

Banking groups including KCB, the largest by assets, Equity and Cooperative Bank—and even the ill-fated Imperial Bank with a branch in Uganda—have opened subsidiaries and scaled up their operations in the neighbouring countries in recent years.

“Supervisory colleges have been established for six Kenya-headquartered banks. The Central Bank of Kenya (CBK) plans to have colleges in place by 2016 for all Kenyan banks with significant cross-border operations,” said the IMF in this year’s report on technical assistance to various countries.

The report said that the work on consolidated (all subsidiaries) supervision of banks started with the setting of a legal framework in 2013.

The supervisory units or colleges have already been established for six banks, but there are five more lenders for which such units are supposed to be set up.

READ: Nairobi gives the US access to bank deals of over Sh1m

The CBK began with supervisory colleges for KCB, Diamond Trust Bank and Equity Bank. Most recently it has set up an additional three colleges, namely, for NIC Bank, Commercial Bank of Africa and I&M Bank bringing the total to six.

The five banks for which such colleges had not been set up as at the end of 2014 included Bank of Africa, Guaranty Trust Bank, Imperial Bank, ABC and Cooperative Bank.

“The six supervisory colleges that have been set up so far have proved useful to the regional banking sector regulators. The colleges have served as avenues to share supervisory experiences and harmonise supervisory practices by embracing global best practices,” said the CBK in its supervisory report on the sector for the year ending December 2014.

The CBK added that the regulators in the region have also strengthened their resolve to continuously share information on the cross-border operations of banking groups as a means of ensuring a stable banking sector.

The IMF report quoted a CBK officer as saying that as a result of the efforts it had become a point of reference for other countries in the region.

“Domestic and cross-border markets has been enhanced,” Matu Mugo, CBK’s bank supervision department was quoted as saying.