According to the 2021 Banking Supervision Report by the Central Bank of Kenya (CBK), nine banks were found to have violated critical legal requirements in 2021.
While this was a decline from 13 banks that were in violation of the Banking Act and CBK Prudential Guidelines in the year ending December 31, 2020, the improvement in compliance contributed to the increased profitability of banks as the economy began to recover from the negative impact of the Covid-19 pandemic.
CBK said most of the violations were in respect to a breach of the single obligor limit mainly due to a decline in core capital in some banks that have continued to report losses.
“Appropriate remedial actions were taken on the concerned institutions by the CBK in respect of the violations,” said the regulator.
Eight banks failed the test of ensuring that a single borrower does not receive more than 25 per cent of their core capital, a requirement designed to avoid the risk of lenders putting all their eggs in one basket.
Two banks failed to maintain the minimum core capital of Sh1 billion, while two banks were found guilty of engaging in prohibited business that restricts aggregate large credit exposures to not more than five times the core capital.
Five banks had sunk more than a fifth of their core capital into land and building, a violation aimed at ensuring that banks have enough liquidity in case depositors urgently need their money.
Five banks failed to meet the minimum statutory required ratio for total capital to total risk-weighted assets of 14.5 per cent, a violation that affected one of the largest banks.
Three banks failed to meet the statutory minimum required ratio for core capital to deposit ratio of eight per cent.
Additionally, three banks had a single insider take up loans valued at over a fifth of their core capital, while two lenders had insider loans exceed the total insider borrowing limit of 100 per cent of core capital.
One bank failed to maintain the minimum statutory liquidity ratio of 20 per cent, while two banks violated the requirement that a financial institution maintain foreign exchange exposure at not more than 10 per cent of core capital.
