NAIROBI, Kenya, Apr 15 – The Central Bank of Kenya (CBK) has set tough conditions for banks seeking the liquidity support facility it set aside last week.
The facility was created to cushion banks experiencing liquidity pressure with the aim of restoring depositors’ confidence.
This was after Chase Bank was placed under receivership after speculation and rumours on social media choked the bank.
CBK Governor Patrick Njoroge outlined the conditions among them reorganising of assets and consolidating investments so as to get liquidity.
Banks will also be forced to bring in additional equity funds from shareholders as well as selling any foreign currency they may be holding.
They will also need an action plan towards re-establishing relationships with other banks, if they have lost credit lines to other banks.
They will also need to slow down in lending.
“The facility is tailored for commercial banks and microfinance. The tenure is something like seven days, one week, two weeks, three weeks. There will be daily monitoring and reporting, weekly status report as well as a targeted inspection on the lender,” Njoroge told journalists.
No bank has yet taken the facility but Njoroge said he had seen interest from the banks seeking to understand the facility.
Following the announcement of the facility, Njoroge said the market became calm as depositors stopped rushing to transfer their deposits from ‘small’ to ‘big’ banks.
He sought to explain the volatility in the financial sector has brought about transparency in the banking sector.
“Institutions have cleared their balance sheet. Numbers now mean what they say,” Njoroge stated terming it as the banking sector new normal.
He hopes the new normal will see shareholders hold bank directors and management accountable with serious discussions in the Annual General Meetings.
“I am told that most discussions in some AGMS revolve around getting an umbrella or a base ball cap, actually the other one now is a power bank… they need to talk about their numbers and financials,” he stated.