The Central Bank of Kenya (CBK) has revealed that 11 commercial banks violated the Banking Act and CBK Prudential Guidelines as of December last year, exposing them to the risk of over-concentrating their lending to single clients.
According to the CBK’s 2024 Banking Sector Supervision Annual Report, most of the breaches related to the single obligor (maximum amount a bank is allowed to lend to one borrower) limit occurred due to a decline in core capital in some banks that reported losses during the year.
The report indicates that nine commercial banks breached Section 10 (1) of the Banking Act by exceeding the single obligor limit of 25 per cent of core capital. This restriction is meant to prevent overexposure to a single borrower, which can threaten a bank’s stability.
However, this marks a slight improvement compared to twelve commercial banks that were flagged for non-compliance in the previous year.
Two banks were found to have breached Section 11(1)(f) of the Act by exceeding the single insider borrower limit of 20 per cent of core capital, while one bank violated Section 11(1)(g) by surpassing the total insider borrower limit of 100 per cent of core capital.
In addition, two commercial banks contravened Section 12(c) of the Act and the CBK Prudential Guideline on Prohibited Business by investing more than 20 per cent of their core capital in land and buildings.
The CBK also flagged five banks for breaching Clause 3.3 of the same guideline, which restricts aggregate credit facilities to all large exposures to not more than five times the institution’s core capital.
On capital adequacy, three banks failed to meet the minimum core capital requirement of Ksh1 billion as stipulated in Section 7(1) of the Act.
Five other banks failed to comply with the capital adequacy ratios set under CBK Prudential Guidelines, including maintaining a total capital to total risk-weighted assets ratio of 14.5 per cent and a core capital to total risk-weighted assets ratio of 10.5 per cent.
Four banks also fell short of the required core capital to total deposit ratio of 8 per cent, raising concerns about their ability to absorb potential losses.
In foreign exchange management, two commercial banks exceeded the CBK’s maximum foreign exchange exposure limit of 10 per cent of core capital, in violation of Prudential Guideline CBK/PG/06.
Liquidity management failures were recorded in three banks, which did not meet the statutory liquidity ratio of 20 per cent as required under Section 19(1) of the Banking Act.
The CBK further noted that three banks violated corporate governance rules by allowing ownership by a single person to exceed the 25 per cent maximum threshold. “Appropriate remedial actions were taken on the institutions concerned in respect of the violations,” the regulator stated.
However, the regulator did not disclose the names of the banks involved in the violations.
