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Audit firm wants CBK to change banks’ reporting structures

RSM Group Chief Executive Ashif Kassam. Photo/SALATON NJAU
RSM Group Chief Executive Ashif Kassam. Photo/SALATON NJAU  

An audit firm has asked the Central Bank of Kenya (CBK) to change the reporting structure for commercial banks in an effort to get the lenders to share more information with the public.

The current reporting schedule was set in 2002 with little adjustments thereafter and fails to give analysts information needed for in-depth analysis of banks’ performance and stability, the firm said.

“Our reporting is quite archaic. There are no ways to check what resources are at the banks’ disposal and how they are using them, and also their risk management,” said the executive chairman of auditing and consulting firm RSM Ashvir, Ashif Kassam.

Kenyan banks have been accused severally of manipulating their books resulting in overstating their profitability.

In 2012, the banks were reported to have juggled their investment in government securities to avoid declaring a drop in profits.

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Central Bank reacted by introducing new lines of reporting last year that require the lenders to indicate the value of government securities held to maturity and those that were for trading (marked to market).

Analysts contacted by the Business Daily said the banks needed to give a breakdown of the loan provisioning.

Kenyan banks have also been accused of understating their loan provisions so as to declare higher profits. Poor provisioning has the impact of exposing the lender to collapse in case of mass defaults.

A breakdown on the sectors provided for and the tenure of the loans affected would help clarify the risk exposure.

There are also concerns that the banks do not give a breakdown of their non-interest income and also the cost segments.

Auditors comments contained in the annual reports are viewed as insufficient as they only give a conclusion of their opinion without details of the issues raised with the bank management and how the issues were addressed.

Dubai Bank was last year shaken by issues of corporate governance that included CBK stating that the lender had underprovided for its bad books in the previous year.

Kenyan banks have been attracting local and foreign investors who require detailed understanding of the risks they are exposed to.

Foreign institutions have also been looking to enter the industry by buying equity in small and medium-sized players.

Banks are required to publish their financial statements every quarter. Most of the lenders do not share annual reports, which are more detailed.

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