Central Bank halts rules on recapitalisation of banks, boards

By James Anyanzwa

The Central Bank of Kenya (CBK) has temporarily suspended the operationalisation of new prudential guidelines. The rules required commercial banks to, among others, recapitalise and reconstitute their boards of directors in line with the best global banking practices by August 1.

This comes after commercial banks raised concerns over the modalities of implementation, saying the new guidelines could not be executed uniformly.

Association protests

The Kenya Bankers Association (KBA), the industry’s umbrella body, on Tuesday noted that some proposals, particularly those touching on enhanced capital adequacy ratios and admission of new directors would require time to carry out.

“After reviewing those guidelines, we realised there were areas which were challenging and the implementation date of the various guidelines may not actually be the same,” KBA Chief Executive Habil Olaka told The Standard on Tuesday.

Olaka reckoned that capital adequacy could not be built overnight while reconstitution of new boards of commercial banks is a process, which involves identifying people, getting the right match and getting them on the board.

“It is also a process that will require shareholders approval,” he said. “ We are going to hold a consultative session between CBK and the stakeholders so that we can iron out some of the issues that were raised,” said Olaka.

Central banks had proposed higher capital requirements for banks to enable them create adequate buffers to withstand shocks in times of economic and financial stress.

Consequently, the minimum required capital adequacy ratio for commercial banks, which currently stands at 8 per cent of the total Risk Weighted Assets, would effectively climb to 10.5 per cent.

The new guidelines require the boards of commercial banks to be made up of only a single executive director (chief executive) and at least 66 per cent (two-third) of the non-executive directors to be independent (non-shareholders).

Industry insiders revealed that the emerging development  has not gone down well with some players in the market who feel that sharing confidential banking information with ‘outsiders’ might be detrimental to their business.