Central Bank of Kenya earnings from penalties dip 55pc

CBK

The Central Bank of Kenya head office in Nairobi.

Photo credit: Pool I Nation Media Group

The Central Bank of Kenya’s earnings from penalties imposed on commercial banks and foreign exchange bureaus for regulatory breaches fell by more than half in the year to June 2022.

This signals increased regulatory compliance by the regulated entities.

CBK’s earnings from the penalties fell 55 percent to Sh13 million down from an income of Sh29 million in the financial year to June 2021.

The banking sector regulator often fines and suspends financial institutions for numerous breaches of laws, regulations, and guidelines to deter the firms from repeating the breaches to enhance regulatory compliance.

This includes failing to report suspicious cash transactions including cash transactions exceeding Sh1 million in a bid to curb money laundering.

The reporting helps the CBK to track suspicious money deals and help prevent fraud and other financial crimes.

The regulator has recently revealed breaches including one in which two commercial banks breached its insider lending limit rule last year by giving loans to internal parties in excess of their core capital.

Each bank is required to have a core capital of at least Sh1 billion, with the funds forming an institution’s permanent capital.

The law prohibits banks from issuing credit facilities that are unsecured or provided to insiders such as employees, directors, and shareholders, and which cumulatively exceed the core capital.

The rule is designed to avoid insider dealings that can expose an institution to collapse, hurting depositors and other parties.

“Two commercial banks were in violation of Section 11(1) (g) of the Banking Act as they exceeded the total insider borrowing limit of 100 percent of core capital, breaching the limits placed on lending to a single borrower,” the CBK said in its 2021 bank supervision report without naming the lenders.

The CBK in total flagged nine banks for non-compliance with various rules in 2021, compared with 13 in 2020, largely due to the failure of owners to raise fresh capital in a depressed economy battered by Covid-19 shocks. Some institutions had multiple offences.

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