Apex bank report says nine lenders lack adequate capital buffers and continued to run empty.
A new Central Bank of Kenya (CBK) report has exposed naughty banks that engaged in insider lending or breached the capital adequacy ratios.
Giving its review of last year’s bank performance, CBK singled out nine banks that did not have adequate capital buffers, as most of them continued to run empty.
However, the report failed to reveal the identity of these banks in what is aimed at maintaining stability and confidence in the financial sector.
“Appropriate remedial actions were taken on the concerned institutions by the CBK in respect of the violations,” read part of the Banking Annual Supervision Report 2019.
The report showed that these lenders violated various legal instruments and regulatory requirements last year, with CBK reprimanding them.
According to the report, seven banks had violated the requirement that they restrict investment in land and buildings to 20 per cent of their core capital. Three commercial banks did not have the minimum core capital of Sh1 billion.
Five banks violated Section 18 of the Banking Act and the CBK Prudential Guidelines on capital adequacy.
This included failure to meet the minimum statutory required ratios for total capital and core capital to total risk-weighted assets of 14.5 per cent and 10.5 per cent respectively, as well as core capital to deposit ratio of eight per cent.
Four banks violated guidelines on foreign exchange exposure that requires an institution to maintain foreign exchange exposure at not more than 10 per cent of its core capital.
Four banks also failed to maintain the minimum statutory liquidity ratio of 20 per cent.
The Capital Markets Authority (CMA), in a recent report, noted that several financial institutions had previously indicated they would apply their issue proceeds towards meeting core capital requirements as prescribed by CBK.
“To a less extent but also worthy of note, commercial banks and financial institutions, which have traditionally been the most popular issuers of corporate bonds, have been able to comply with Base II financial resource requirements,” said CMA.
Another two banks violated a section of the Banking Act which prohibits them from granting facility to a firm they have equity interest directly or indirectly that amounts to 25 per cent or more of the entities share capital.