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Moody’s says CBK lacks capacity to handle new crisis

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Central Bank of Kenya Governor Patrick Njoroge. PHOTO | FILE

Summary

  • Moody’s says there is urgent need to revamp the regulator’s capacity to monitor and also handle potential future banking sector collapses.
  • The CBK governor Patrick Njoroge has in the past admitted to the need to boost the regulator’s capacity to monitor the banking sector.

The Central Bank of Kenya is too stretched to deal with potential future banking crisis, a senior Moody’s official has warned.

Vice president and senior sub-Saharan Africa banking analyst at Moody’s Financial Institutions Group Akin Majekodunmi Thursday said there is urgent need to revamp the regulator’s capacity to monitor and also handle potential future banking sector collapses.

CBK and the Kenya Deposit Insurance Corporation outsourced both the audit and deposit refund functions to KCB Group and NIC Bank in the aftermath of recent failures of Chase Bank and Imperial Bank respectively.

“Given all these regulatory challenges and the last three bank failures namely Dubai Bank, Chase Bank and Imperial Bank, this is a very dynamic situation. I am sure the resources of CBK are being strained and if you combine that with what the (Central Bank) Governor said, it is likely that the CBK will require resources to regulate this banking system,” said Mr Majekodumni Thursday on the sidelines of a Moody’s East Africa Credit Conference held in Nairobi.

The CBK governor Patrick Njoroge has in the past admitted to the need to boost the regulator’s own capacity to monitor the banking sector.

Mr Majekodunmi predicted that CBK could face even more pressure in its bid to make banks conform to stiffer regulatory guidelines.

READ: CBK targets rogue bank directors with fresh audit of insider loans

The comments were echoed by Rich Management CEO Aly Khan Satchu who spoke at the event.

“We have had quite an eventful 12 months in the banking Sector. The Central Bank has essentially outsourced the process of receivership and my question is around the capacity of the bank to handle any more of these situations. The out-source model might be pushing on a string,” said Mr Satchu.

Banks have felt the heat as the CBK boss has tightened enforcement of regulations. A second bid by the Treasury to raise the capital adequacy requirement for lenders is expected to see smaller banks come under additional pressure if passed into law.

A weak CBK supervisory unit was blamed for the failure to detect cooked financial books that presented a rosy picture to shareholders and were used cover up insider lending.

The closure of three banks in a span of eight months shook the confidence of depositors in the banking sector.

CBK has since embarked on a hunt for talent following revelations that the supervisory unit lacks the expertise to audit banks’ IT systems.