NAIROBI, Kenya Oct 14 – The Central Bank of Kenya (CBK) has assured that the country’s banking sector remains safe and robust even after two banks were put under receivership.
The regulator says the action taken is in accordance with the principle of prompt corrective action to address unsafe banking practices.
The CBK on Tuesday placed Imperial Bank Limited under receivership and appointed the Kenya Deposit Insurance Corporation (KDIC) to assume management and control of the bank.
“The board of directors of Imperial Bank Limited brought to the attention of the CBK inappropriate banking practices that warranted immediate remedial action in order to safeguard the interest of both depositors and creditors,” CBK said in a statement.
As a result of this intervention by the CBK, the Capital Markets Authority (CMA) in accordance with provisions of Section 22A of the Capital Markets Act has directed the Nairobi Securities Exchange to suspend the introduction to listing and trading of the Corporate Bond issued by Imperial Bank which closed on September 17, 2015.
This suspension has been imposed in the public interest and to protect investors.
CMA will be working closely with the Board of Imperial Bank and KDIC to ensure all material information is made available to investors to ensure the maintenance of the transparency and orderliness of the capital markets.
“The appointment of KDIC to take control of the management of the bank is intended to provide a platform for KDIC to execute its statutory mandate with the support of the board of directors of Imperial Bank Limited towards restoring the safety and soundness of the bank,” the statement reads.
This comes two months after CBK placed Dubai Bank Kenya under receivership and later liquidation following what it termed as “serious liquidity challenges and capital deficiencies.”
“Dubai Bank Kenya has been experiencing serious liquidity and capital deficiencies which have raised the CBK concerns that it will most likely not be able to meet its financial obligations as and when they fall due,” CBK announced.
The Treasury had proposed to raise banks’ core capital to Sh5 billion within the next three years, saying this will increase the dominance of the big players and lead to consolidation of the smaller banks.
However CBK Governor Patrick Njoroge opposed the proposal arguing that although more capital would strengthen the banking institutions and enable them to take up more projects, other crucial factors needed to be taken seriously so as to minimise the risk to the general public.
“If you look at the 42 banks, there those that have a lot of capital but the way we want to deal with it is through a risk weighted approach meaning they must have capital that is commensurate with the risk they have,” Njoroge had stated when he appeared before Parliament’s Finance, Planning and Trade committee.