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CBK reviewing risk guidelines

NAIROBI, Kenya Feb 1 – The Central Bank of Kenya (CBK) is currently in the process of reviewing its Prudential and Risk Management Guidelines in order to align them with the contemporary operating environment and international best practices.

According to a survey released by the industry regulator, commercial banks are still wary of market and credit risks as a means of growing their business.

This follows the introduction of risk-based supervision for banks in an effort of deepening financial access in the country.

According to the CBK survey, 95 percent of financial institutions had recognised the importance of proper risk management by setting up independent and well-funded risk management functions.

Stronger risk management has helped 90 percent of financial institutions to cut financial losses.

“There is enhanced risk-awareness and risk-management at 95 percent of the institutions hence improved efficiency and effectiveness of risk management,” CBK said in the report.

Introduced in 2005, risk management guidelines were geared towards safeguarding the banking sector.

Before then commercial banks focused more on the upper and middle class borrowers, locking out the low income borrowers who were perceived to carry high risk.

As part of ongoing measures to deepen financial inclusion in the country, the CBK has undertaken initiatives such as the rollout of the agent-banking model, rollout of the credit information sharing mechanism and licensing of deposit taking microfinance institutions.

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This has seen the banking sector’s performance post positive growth over the years.

In the year ended December 31, 2010, total assets grew from Sh1.35 trillion in 2009 to approximately Sh1.69 trillion.

During the period deposits increased to approximately Sh1.26 trillion while total loans and liabilities stood at approximately Sh915 billion and Sh1.43 trillion respectfully.
According to the survey, the significant risks faced by the institutions are market risk, operational risk and credit risk.

However, other emerging risks, which are cited by the institutions as being of concern to them, are country risk, sustainability risk, expansion/project management risks and the risk of non-compliance with applicable prudential and regulatory requirements.

“The structural transformation has led to the continued significance of traditional credit, market and operational risks. But it has also led to the emergence of novel risks such as country, project and sustainability risks,” the report reads.

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