CBK Tightens Oversight with New Guidelines for Commercial Banks
The Central Bank of Kenya (CBK) has rolled out stringent guidelines aimed at streamlining operations within the banking sector. These measures focus on ensuring financial stability, transparency, and the protection of consumers, reflecting the regulator’s commitment to enhancing trust in the industry.
One of the significant updates revolves around lending and risk management. Commercial banks are now required to maintain a minimum core capital of KSH 1 billion, with plans to incrementally raise this to KSH 10 billion. This move aims to fortify the financial resilience of banks. To mitigate risks associated with large loans, CBK enforces the single obligor rule, limiting loans to a single borrower to a maximum of 25% of a bank’s core capital. Additionally, banks are barred from investing over 20% of their core capital in real estate, safeguarding their liquidity against non-core investments.
In a bid to modernize financial systems, CBK has introduced updated Real-Time Gross Settlement (RTGS) protocols. Effective September 2024, commercial banks are required to adopt ISO 20022 messaging standards. This update emphasizes detailed transaction documentation, including Purpose of Payment (POP) codes and beneficiary details, to improve efficiency and fraud prevention in large transactions.
Liquidity management is another focal point. Banks must adhere to a minimum statutory liquidity ratio of 20%, alongside maintaining a capital-to-risk-weighted assets ratio of 14.5%. Despite these thresholds, several banks have faced penalties for non-compliance in recent years. The regulator has not hesitated to impose hefty fines, including daily penalties for prolonged breaches, underlining its no-nonsense approach.
CBK’s credit reporting policies also remain central to its oversight strategy. Through the Credit Reference Bureau (CRB) framework, banks must submit monthly credit data, encompassing both positive and negative customer information. This initiative supports better risk management, encourages responsible borrowing, and allows customers to access their credit reports annually at no cost.
Foreign exchange exposure limits and ownership regulations have also been reinforced. Banks must keep foreign currency exposure below 10% of core capital. Furthermore, no individual or entity can own more than 25% of a bank’s shares, promoting diversified ownership and reducing undue influence.
CBK Governor Kamau Thugge emphasized that these measures are part of a broader strategy to instill discipline and confidence in Kenya’s banking industry.
“We aim to create a resilient financial system that supports economic growth while safeguarding depositors’ interests,” he noted.
These reforms highlight CBK’s proactive stance in stabilizing the financial sector and fostering public trust in Kenya’s banking institutions.
