CBK says in its annual supervisory report that 12 of the 43 lenders violated the Banking Act and CBK Prudential Guidelines, a sharp rise from just four in 2015.
The regulator does not name the lenders usually handed a fine or a warning depending on the nature of the violation.
Seven banks failed to maintain a liquidity ratio of 20 per cent because of panic run on deposits after Chase Bank was placed in receivership on April 7, the CBK says.
More than a quarter of banks in the country violated the law and rules guiding operations in 2016 largely due to pressures emanating from the collapse of mid-tier Chase Bank.
The Central Bank of Kenya (CBK) says in its annual supervisory report that 12 of the 43 lenders violated the Banking Act and CBK Prudential Guidelines, a sharp rise from just four in 2015.
The CBK does not name the lenders usually handed a fine or a warning depending on the nature of the violation.
“The increase in the number of banks in violation was mainly in respect to non-compliance with liquidity ratio after Chase Bank Ltd was placed into receivership due to deposit movement (mostly affecting small and medium banks). However, the situation normalised later in the year,” the CBK says.
Seven banks failed to maintain a liquidity ratio of 20 per cent because of panic run on deposits after Chase Bank was placed in receivership on April 7, the CBK says, contravening section 19(1) of the Banking Act and CBK Prudential Guideline (CBK/PG/05) on liquidity management.
Chase fell following massive panicky withdrawals of deposits by customers after external auditor, Deloitte East Africa, issued a qualified opinion on its books due to failure by the management to adequately furnish them with information on insider loans.
The CBK was on April 11, 2016 forced to open a special window for distressed smaller lenders following a bank run that had spread to other banks. The regulator also castigated three banks for lending more than 25 per cent of their core capital to a single borrower, violating section 10(1) of the Banking Act.
Two banks were not adequately capitalised under Section 18 of the Banking Act and CBK Prudential Guidelines, which require lenders to maintain a minimum core capital of 10.5 per cent and total capital of 14.5 of their total risk-weighted assets.
A similar number of banks also violated the law by investing more than a fifth of the capital in land and buildings, and failing to have every board member attend at least 75 per cent of the meetings in the financial year.
Another two lenders were also culpable of advancing unsecured loans to executive committee members without approval of the board, contravening section 11 (1) of the Banking Act.
One bank did not meet the Sh1 billion minimum core capital thresholds under section 7(1) of the Act.
“Appropriate remedial actions were taken on the concerned institutions by the CBK in respect of these violations,” the CBK says in the report.
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