Markets & Finance

Treasury eyes CBK powers with changes in Finance Act

The Treasury is seeking a say in the placement of distressed banks in statutory management under legal changes that will cut the powers of Central Bank of Kenya (CBK).

In a move likely to raise questions on the independence of the CBK, Treasury secretary Henry Rotich is seeking an amendment to the Kenya Deposit Insurance Corporation (KDIC) Act to make it a requirement for the Treasury to be consulted before a bank is put in administration.

Currently the decision is purely at the discretion of the CBK but that is set to change under the current Finance Bill.

“The Bill seeks to amend the Act to provide for the involvement of the Cabinet secretary in the appointment of the corporation (KDIC) as a receiver,” said Benjamin Langat, chairperson of the parliamentary Finance, Planning and Trade Committee.

The amendment signals the Treasury minister could have been unhappy with recent decisions by CBK to place three lenders under receivership, a move that caused ripples in the banking sector and threatened to spill over to the rest of the economy.

“It is only in order the minister is kept in the picture and he may also have a contribution as the decision is being made,” said Kenya Bankers Association chief executive Habil Olaka.

Since the appointment of Patrick Njoroge at the helm of CBK last year three banks have been put under statutory management: they are Dubai Bank, Imperial and Chase Bank.

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Dr Njoroge’s decisions to close down Imperial and Chase banks were huge shockers to the market including the Treasury which had a Sh200 million deposit in Chase Bank.

Questions have arisen on whether the Central Bank was rash in its decision to close Chase Bank which was in the process of booking a Sh5 billion debt from African Development Bank.

Mr Rotich is also proposing to lock out practicing bankers from being members of KDIC board of directors to avoid conflict of interest.

“A person appointed under subsection (1)(d) shall not be a public officer or a person from a member institution licensed by the Central Bank of Kenya,” reads the amendment.

Currently Jeremy Ngunze, chief executive of CBA Bank, Nasim Devji, CEO DTB and Samuel Kimani of Jamii Bora Bank are directors of KDIC.

Uchumi CEO Julius Kipng’etich also serves in the board having been appointed during his tenure as chief operating officer at Equity Bank.

The banking fraternity will be represented on the board by the chief executive of their umbrella body, Kenya Bankers Association — at present Mr Olaka. “I am not aligned to any bank so if KDIC takes administrative action against a bank then I am not conflicted,” said Mr Olaka.

Other members will include a chairman appointed by the President, National Treasury PS, CBK governor and five members appointed by the Cabinet secretary.

The government at the same time aims to prop up banks while tightening adherence to prudential guidelines in the banking sector by increasing applicable penalties in case of default.

Commercial banks will have three years to raise their minimum shareholder related capital, referred to as core capital, to Sh5 billion from the current Sh1 billion if proposals by Mr Rotich go through.

The Cabinet secretary proposes to double the minimum core capital by end of next year to Sh1 billion before increasing it an year later by Sh1.5 billion and to Sh5 billion by end of 2015.

The CBK successfully opposed the proposal last year but recent collapse of lenders is likely to swing Parliament to Mr Rotich’s reasoning for more capitalised lenders.

The proposal will force more than 20 banks to start sourcing for more capital to be compliant.