Banks face stiff fines for violating CBK guidelines

Banks breaching Central Bank of Kenya guidelines risk higher penalties in new measure introduced to sanitize the banking sector.

Treasury Cabinet Secretary Henry Rotich has proposed to penalize banks Sh20 million if found to be violating the regulators prudential guidelines. Mr Rotich argues that the previous fine of Sh5 million appeared not to deter banks that close to or indeed defied the guidelines.

“The current monetary penalty for violation of the Banking Act or the Prudential Guidelines is capped at Sh5 million. This amount has proved to be too little compared to the seriousness of some of the violations institutions have committed,” Mr Rotich said during the presentation of the 2016/17 budget in parliament.

The banking sector has since August 2015 been rocked to its core with two banks being placed under receivership.

In the case of Dubai Bank, the bank was found to be facing serious liquidity challenges and capital deficiencies. Two months later Imperial Bank also suffered a similar fate after the discovery of Sh34 billion fraud scheme that had gone on undetected for 13 years.

Of late banks have also had to be thorough in their financial reporting with at least two banks restating their 2015 financials.

The treasury CS said the proposal to raise bank’s core capital in the last financial year had failed to yield the desired effect, further hinting at new changes to streamline the sector.

“I am seeking to reintroduce the proposals and I am hopeful that members will look at them more favorably in light of the recent developments in our banking sector,” he said.