Central Bank of Kenya(CBK) Governor Kamau Thugge has blamed soft financial penalties for breaches of the banking sector laws by commercial lenders and now eyes stiffer penalties for non-compliance.
Dr Thugge said the current penalties had failed to curb violations by banking executives.
“One of my first observations was that there seems to be a number of them (banks) who have not been complying with some of the provisions because the penalties are so low. I have suggested we strengthen those penalties. The stricter penalties will bring a lot of sanity to the system where banks will think twice before they violate a provision of the Central Bank,” the Governor said in an interview last week.
Earlier this year, CBK moved proposals to establish specific fines for lenders and officials breaching its rules in a move away from omnibus fines on all violations.
The published Draft Banking (Penalties) Regulations, 2024 propose a maximum fine of Sh20 million for institutions violating rules on minimum capital levels and adequacy ratios, making adequate provisions for loans and write-offs, and corporate governance regulations.
The lenders will also be slapped with a fine of up to Sh20 million for failing to keep proper books of records and failure to comply with CBK requests during an audit inspection.
Despite a push to tighten the screw on banking sector executives and top management, Dr Thugge says he will still pursue a hands-on approach in engaging commercial banks.
The hands-on approach would be a step away from his predecessor’s approach which was largely deemed as 'hands-off' by banking sector actors.
Former CBK Governor Patrick Njoroge was, for instance, not fond of engaging bank executives through events and often reprimanded the lenders for misdeeds including violations against foreign exchange trading guidelines.
Lenders Absa Bank Kenya and Ecobank Kenya for instance saw regulatory action taken against it for failure to provide specific foreign exchange trades conducted in March of 2020.
Dr Thugge is seeking to adopt a carrot-and-stick approach where he hopes for open engagement with banks to help streamline his supervisory role but the CBK Governor also stands ready to tighten the nose on lenders who fail to toe the line.
“I have tried to engage the stakeholders as much as I could and we have had regular meetings with the CEOs of banks. I wouldn’t want a hands-off approach but that’s not to mean that we will not be very hard on them if they don’t comply. I want to engage with them as much as I can but we will also have the stick to use if they fail to comply,” Dr. Thugge added.
Among other penalties sought by the CBK is a Sh5 million charge for offences including the appointment of directors and senior officers without the requisite approval of the bank, and failing to properly exhibit audited financial accounts in branches.
