The Central Bank of Kenya (CBK) disclosed in its 2021 bank supervision report that two commercial banks violated insider lending regulations by exceeding core capital limits. The breaches involved loans to internal parties, including directors, shareholders, and employees, surpassing statutory thresholds outlined in Section 11(1)(g) of the Banking Act.
Under CBK regulations, institutions must maintain a minimum core capital of Sh1 billion, with insider lending restricted to 100% of this amount. The report noted that the two banks exceeded this limit, though their identities were not disclosed. The regulator emphasized that such violations risk institutional stability by exposing banks to collapse through excessive insider borrowing.
The CBK highlighted broader compliance challenges across the sector, citing nine banks flagged for rule breaches in 2021 compared to 13 in 2020. These included violations of single obligor limits, land investment caps, and capital adequacy requirements. The report attributed many issues to declining core capital amid economic pressures from the COVID-19 pandemic.
While the CBK did not specify enforcement actions, it confirmed remedial measures were taken against the institutions. Other violations included eight banks exceeding the 25% single obligor limit, five breaching land investment restrictions, and multiple banks failing to meet capital adequacy ratios. The findings were published in May 2022 as part of the regulator's annual oversight report.
