CBK Governor Patrick Njoroge says the move – which comes after two banks were placed under receivership – does not however apply to resolutions, amalgamation and acquisitions.
The institutions are Dubai Bank Kenya which experienced serious liquidity challenges and capital deficiencies while the other is Imperial Bank which had unsafe or unsound business conditions.
The liquidity crunch has seen depositors shift their funds from smaller banks to large tier one banks according to economic experts.
“In order to manage the liquidity crunch and reduce rates, Treasury was actively purchasing securities from banks with an undertaking of selling them back later (reverse repo). There has been a liquidity crunch especially for the small banks as depositors shift their funds to the large tier 1 banks, hence Central Bank of Kenya providing the liquidity,” Kevin Kiprono, Senior Portfolio Manager Pan Africa Asset Management told Capital FM Business.
Currently there are there are 43 licensed commercial banks and one mortgage finance company.
Out of the 44 institutions, 31 are locally owned and 13 are foreign owned. The locally owned financial institutions comprise three banks with significant shareholding by the Government and State Corporations, 27 commercial banks and one mortgage finance institution.
Njoroge earlier stated the CBK will conduct a thorough audit of all banks to ensure correct information is given to the public.
In an appearance before the Senate Finance committee last week, he said they had learnt ‘painful’ lessons from the case of Dubai Bank and Imperial Bank and it was time to address the matters more urgently.
“We have been in touch with all the CEOs of commercial banks to ensure banks are working well. We have been monitoring the conditions on a day-to-day basis and bank-to-bank,” he assured.
He noted that the shocks that hit the market affected liquidity especially on those that had a lower amount pointing out they had encouraged banks to recycle liquidity since they found out that only four banks had high amounts.
He said they would now interrogate the data in all banks to get the actual status to avoid cases where institutions ‘cook up’ results and give false information.
“We need to go deeper down interrogating the loan by loan data in the system and not just the reports that indicate the total loans,” he said.
Njoroge who is also the Chairman of the Monetary Policy Committee resolved to retain the Central Bank Rate at 11.5 percent.
“The CBK will continue to use the instruments at its disposal to maintain overall price and financial sector stability,” Njoroge added.