Banks raise concern over role duplication among regulators

Francis Opiyo, a homeowner at Green Park Estate in Athi River shows a demolition mark notice from Water Resource Authority (WRA). [David Njaaga,Standard]

Banks have cited the duplication of roles between national and county governments as one of the hindrances to business when dealing with environmental issues.

A report that details these challenges also notes the duplication of licensing roles among sector-specific regulators.

The challenges expose the financial institutions to more risks when it comes to lending or recovering loans from customers who borrow to undertake development projects.

The report, Environmental Risk Exposure in the Kenyan Banking Sector by Kenya Bankers Association in partnership with the Financial Sector Deepening (FSD) Kenya notes that while the National Environment Management Authority (Nema) is the principal body, it shares the same jurisdiction with other agencies as well.

Such include the Water Resource Authority (WRA).

The report published July 7, 2022, says that there is often duplication of licensing jurisdiction at the national and county level and across sector-specific regulators, which creates differing standards and conflicts.

“For instance, water abstraction is licensed by both Nema and the WRA, effluent discharge is licensed by Nema and the Ministry of Water, and waste management activities are licensed by Nema as well as by the Nairobi County,” it says.

The report was supported by the International Union for Conservation of Nature and The Mitsubishi Corporation Fund for Europe and Africa.

This duplication causes confusion when seeking permits for development projects, which at times may lead to one regulator revoking a permit issued by the other.

“In each of these cases, it is unclear which entity has precedence over the other,” the report reads.

It says each regulator gets a significant portion of its funding from licence fees, and so is unwilling to relinquish its legal authority to grant the approvals.

Stakeholder consultations conducted during the report's compilation also revealed that there is a general lack of clarity on the mandates relating to relevant institutions, particularly the role played by counties and those of the national government.

“The institutional framework could therefore benefit the harmonisation of enabling environmental policies and legislation to avoid conflicting mandates,” it proposes.

The report states that while banks can position themselves in a variety of ways in their pursuit of growth against being at a historic tipping point, they cannot maintain the status quo given the opportunities to finance sustainable developments and activities, diminishing resources, and tighter sustainability regulations are impacting clients and their ability to repay debt.

Non-performing portfolios

Additionally, some of the risks of inaction banks face include overexposure to non-performing lending portfolios as well as the transfer of liabilities to the bank through foreclosures.

The report adds that banks face reputation and market risk as well as liability for environmental damage.

“Environmental risks should be properly identified and assessed to inform the appropriate risk mitigation and management approach,” the report says.

“Risks that are not systematically assessed may be incorrectly assumed to be irrelevant.”

Addressing delays in obtaining regulatory approvals, the report proposes that Nema should invest in adequate staffing and training to ensure the regulators and government officials are adequately equipped and motivated to provide timely services and oversight.

It also proposes lobbying for the digitisation of the process of issuance of improvement and closure notices to ensure there is adequate oversight from Nema.