CBK cash penalties on banks double under stringent regime

Penalties for commercial banks by the regulator more than doubled last year underlining the more stringent approach taken by the new Central Bank of Kenya (CBK) governor.

Details in CBK’s financial statements show that the regulator collected Sh40 million as penalties up from Sh16 million in the previous year.

The size of penalties meted out by the regulator have previously been seen as too small, which indicates there could have been a spike in the number of offences.

A change of guard at the CBK in June last year has seen increased focus on adherence to regulations to ensure financial stability with the previous regime accused of having been lax in dealing with violators.

The government recently increased the size of monetary penalties handed out to institutions that violate banking regulations.

“The current monetary penalty for violation of the Banking Act or the Prudential Guidelines is capped at Sh5 million. This amount has proved to be too little compared to the seriousness of some of the violations institutions have committed,” Finance Secretary Henry Rotich said in the year’s budget statement.

The maximum penalty was increased to Sh20 million with provision for additional penalties for each day that the violation continues.

Some of the incidents attracting fines this year include money laundering charges on banks that handled cash paid from the National Youth Service.

Three banks –Sidian, Family Bank and Faulu – were charged the maximum penalty of Sh1 million each for the offence.

A report from parliamentary accounting committee, which was investigating the NYS scandal, said 28 commercial banks had handled the money indicating fines on lenders associated with the scam could have shot up.

READ: Parliament lists banks that moved the NYS billions

Dr Njoroge has noted that collection of penalties should not come before the industry stability meaning the amount should be reasonable and applied to ensure the banking sector remains strong.

Other penalties mentioned this year are to banks that understated their non-performing loans.

Several banks reported sharp spikes of bad loans indicating poor classification. Chase Bank, now under receivership, and National Bank are some of the lenders that reported increases in bad loans last December, plunging them into losses.

Chase Bank reported bad loans of Sh11.8 billion in December up from Sh4.5 billion in September while defaults at National Bank ballooned by Sh5.3 billion in the three months to Sh11.7 billion.

Penalties on individual directors of banks are capped at Sh100,000.

Several lenders have also been struggling with capital adequacy and liquidity issues following ripples caused by the collapse of three lenders in the last year.

The regulator fines banks for failing to meet capital and liquidity requirements.