The Central Bank of Kenya (CBK) fined 12 commercial banks last year for breach of rules on lending, capital adequacy and investment, new disclosures showed.
While the CBK did not reveal the institutions affected and the size of fines, it said that “appropriate remedial actions were taken on the concerned institutions by the CBK in respect of the violations”.
According to the Banking Act, the CBK may impose penalties not exceeding Sh5 million for institutions and a maximum of Sh200,000 for individuals depending on the severity of the breach.
Further, the Act allows the CBK to “prescribe additional penalties not exceeding Sh20,000 in each case for each day or part thereof during which such failure or refusal continues.”
The CBK’s Bank Supervision Annual Report 2023 shows that nine banks out of 39 that are operational breached the single obligor rule outlined in Section 10 (1) of the Banking Act.
The single obligor rule prohibits commercial banks from lending more than 25 percent of their core capital to a single borrower and related entities.
The rule, which is aimed at protecting banks from exposure to a single borrower, does not apply to loans to public companies.
In Kenya, the core capital requirement currently stands at Sh1 billion, but the government wants to raise this requirement to Sh10 billion progressively in the coming few years.
“Nine commercial banks were in violation of Section 10 (1) of the Banking Act due to breach of the single obligor limit of 25 percent of core capital,” the CBK said in its supervision report published on Thursday.
This is however a slight decline from 2022, when 10 banks breached the provision.
Three banks were also found in breach of the single insider borrower limit of 20 percent of the core capital, while two lenders breached the total insider borrower limit of 100 percent of the core capital.
The CBK also found three lenders to have violated the requirement to not invest more than 20 percent of their core capital in land and buildings.
Five banks also breached the large exposures requirement, marking an increase from four banks that violated the rule in the previous year.
The CBK’s Prudential Guidelines prohibit banks from lending big loans exceeding 10 percent of their core capital to more than five times their core capital.
“The aggregate credit facilities to all large exposures at any one time shall not exceed five times (500 percent) of the institution’s core capital,” according to the guidelines.
Like in 2022, two commercial banks failed to maintain the minimum core capital of Sh1 billion in 2023, which the CBK attributed to continued losses by the lenders.
Four banks – compared to five lenders in 2022 – did not meet the required total capital to total risk-weighted assets ratio of 14.5 percent, the core capital to total risk-weighted assets ratio of 10.5 percent, and core capital to total deposit ratio of 8 percent.
Three commercial banks violated CBK’s Prudential Guideline on Foreign Exchange Exposure that requires institutions to maintain foreign exchange exposure at not more than 10 percent of core capital,” said the apex bank.
Three banks further failed to meet the minimum statutory liquidity ratio of 20 percent while one bank breached the requirement to have at least five directors, out of which at least three should be non-executive directors.
“One bank was in violation of Section 13 (1) of the Banking Act and CBK/PG/07, Clause 3.5 which restricts ownership of an institution to any one person to a maximum of 25 percent,” it added.
