The Central Bank of Kenya has begun vetting directors and senior managers of commercial banks to instill confidence in the banking sector. This exercise was long overdue and will significantly contribute to bringing probity into their operations. The regulator’s actions were in part triggered by reports of financial misconduct in some banks, leaving depositors unfairly exposed.
The assessment of corporate of structures of these banks should strengthen their operations and ensure that customers’ deposits are protected, particularly after it emerged that these weaknesses may have contributed to the collapse of three banks last year. When Chase Bank, Imperial Bank and Dubai Bank were put under receivership, it was expected that these actions would restore confidence in the banking sector, and seal loopholes that could be exploited to commit internal fraud. Whether or not these loopholes have been sealed only time will tell.
In the past, some banks camouflaged malpractice using the confidentiality principal where shareholders make imprudent investment decisions that leave them compromised, and put the deposits they have been entrusted with at risk.
To tighten areas where banks are exposed, the CBK must go beyond this — the regulator must re-vet all directors and senior managers being investigated for malpractice. Otherwise if depositors lose confidence in the banking sector, the consequence can be catastrophic.