11 banks fined for exceeding lending limits, failing capital requirements
The institutions breached 10 regulatory provisions, with most violations linked to lending more than 25 per cent of core capital to a single borrower.
At least 11 banks were fined by the Central Bank of Kenya (CBK) in 2024 for breaking rules on lending limits, capital adequacy, corporate governance and investment.
According to the regulator, the institutions breached 10 regulatory provisions, with most violations linked to lending more than 25 per cent of core capital to a single borrower.
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The Central Bank of Kenya’s supervision report for 2024 shows a slight improvement from last year, when 12 banks were penalised for violating 11 rules. The fines reflect a tightening regulatory environment aimed at ensuring greater compliance in the sector.
Nine banks out of 39 operational institutions breached the single obligor rule, which caps lending to one borrower at 25 per cent of a bank’s core capital. CBK attributed these breaches partly to declines in core capital reported by banks that posted losses.
Appropriate remedial actions were taken on the institutions by the Central Bank of Kenya in respect of the violations,” the regulator said.
Additionally, three banks were penalised for allowing an individual to own more than 25 per cent of the institution, violating Section 13 of the Banking Act. This represents an increase from one bank in 2023. The regulator emphasised that this rule was designed to promote strong corporate governance.
Higher individual ownership conflicts with CBK’s push for larger, more stable banks, reflected in its recent introduction of higher capital requirements aimed at encouraging mergers and acquisitions.
Five banks failed to meet the minimum statutory capital requirement, up from four in 2023, as CBK prepares to increase the minimum core capital from Sh1 billion to Sh3 billion by the end of December 2025.
One bank was found to have loaned its employees, directors and major shareholders more than its owners’ capital, breaching legal limits that cap insider lending at 100 per cent of core capital. Meanwhile, two other financial institutions lent more than 20 per cent of their core capital to a single insider borrower.
Core capital plays a vital role in determining the amount of deposits a bank can accept. It is currently capped at Sh12.50 for every shilling invested by the bank’s owners.
The report also revealed that three banks failed to meet the statutory minimum liquidity ratio of 20 per cent.
Due to the sensitivity of the banking industry, CBK did not disclose the names of the offending banks or the sizes of penalties imposed. Under the law, the central bank can fine institutions up to Sh5 million and individuals up to Sh200,000, depending on the severity of the breach.
In the financial year ending June 2024, CBK collected Sh191 million in penalties from commercial banks and forex bureaus.
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