Ideas & Debate

Banks require self reflection on top leadership

Resident passes Chase Bank, which was placed under receivership. FILE PHOTO | NMG
Resident passes Chase Bank, which was placed under receivership. FILE PHOTO | NMG 

The banking industry in Kenya has experienced its fair share of turbulence over the last one year, with Dubai, Imperial and Chase going under.

Though some cases regarding these banks have gone to court over specific issues, a look at Kenya’s history of many bank collapses, including the latest cases show a worrying trend of senior managers and board members disregarding their own internal processes and the CBK’s prudential guidelines as well as standard banking practices.

Even as the CBK tries to assure the general public that the financial sector is sound, depositors continue to move their money from “small” banks to what may be considered as the “big” banks as they are perceived to be more stable.

As details of top managers flouting guidelines and rules on insider lending, general lending practices and good investment practices, depositors are increasingly becoming sceptical of the banks’ ability to follow their own rules.

However, the question most depositors ask is why the institutions’ own internal audit and risk management systems, the external auditors and the regulator did not pick these violations early enough before closing down the banks.

While the public has been led to believe that the private sector — and especially the banking industry — is guided by strict policies and procedures, the events of the past year have left a lot of doubt and unanswered questions in the minds of the depositors, forcing them to now question the soundness and safety of their resources at the banks.

Going forward, banks and other players in the financial sector should not only publish their financial statements as required by law but also go out of their way to reassure the public that top managers and board members strictly abide by the set standards of operations.

Prior to the banks going under, their financial statements painted a rosy picture of well run businesses, but the revelation later showed complete disregard for sound practices.

Given that a sound financial system is the epicentre of any stable economy, Kenyan banks must, therefore, work with speed and demonstrate their ability to keep in check the activities of their top managers and directors.