Kenya’s central bank fined 12 commercial banks last year for breaching rules on lending, capital adequacy and investment, new disclosures show.
While the Central Bank did not disclose the affected institutions and the size of the fines, it said that “the Central Bank took appropriate corrective measures regarding the concerned institutions in relation to the violations.”
Under the Banking Act, the central bank may impose penalties not exceeding Sh5 million for institutions and a maximum of Sh200,000 for individuals, depending on the seriousness of the violation.
Furthermore, the law allows the Central Bank of Kenya to “impose additional penalties not exceeding 20,000 shillings in each case for every day or part thereof during which such failure or refusal continues.”
The Central Bank of Kuwait’s 2023 Annual Banking Supervision Report shows that nine out of 39 operating banks violated the single obligor rule stipulated in Article 10(1) of the Banking Law.
The single obligor rule prohibits commercial banks from lending more than 25% of their core capital to a single borrower and its related entities.
The rule, which is intended to protect banks from exposure to a single borrower, does not apply to loans to public companies.
In Kenya, the core capital requirement is currently Sh1 billion, but the government wants to raise this to Sh10 billion gradually over the next few years.
“Nine commercial banks violated Article 10(1) of the Banking Law by breaching the single obligor limit of 25 percent of core capital,” the central bank said in its supervisory report published on Thursday.
However, this represents a slight decrease compared to 2022, when 10 banks violated this requirement.
Three banks were also found to have violated the single internal borrower cap of 20 percent of core capital, while two lenders violated the aggregate internal borrower cap of 100 percent of core capital.
The central bank also found that three lenders had violated a requirement not to invest more than 20 percent of their core capital in land and buildings.
Five banks also violated the large exposure requirement, up from four banks that violated the rule the previous year.
Prudential guidelines set by the Central Bank of Kuwait prohibit banks from lending large loans exceeding 10% of their core capital to more than five times their core capital.
“The aggregate credit facilities of all large exposures shall not at any time exceed five times (500 percent) of the institution’s core capital,” according to the guidelines.
As in 2022, two commercial banks failed to maintain the minimum core capital requirement of Sh1 billion in 2023, which the central bank attributed to continued losses by lenders.
Four banks – compared to five banks in 2022 – were unable to meet the required total capital to total risk-weighted assets ratio of 14.5%, core capital to total risk-weighted assets ratio of 10.5%, and core capital to total deposits ratio of 8%.
The central bank said that “three commercial banks violated the prudential guidelines issued by the Central Bank of Kuwait regarding foreign exchange exposure, which requires institutions to maintain foreign exchange exposure of no more than 10 percent of core capital.”
Three banks also failed to meet the legal minimum liquidity ratio of 20%, while one bank violated the requirement to have at least five directors, at least three of whom must be non-executive directors.
She added that “one of the banks violated Article 13 (1) of the Banking Law and CBK/PG/07, Clause 3.5 which restricts the ownership of the institution by any person to a maximum of 25 percent.”