Central bank considers tougher penalties for rogue banks

The Central Bank of Kenya is considering harsher penalties for commercial banks that flout operational rules and may soon publicize enforcement actions that it will take against errant banks, this is according to CBK Governor Dr. Patrick Njoroge.

The financial system in Kenya, East Africa’s biggest economy, was rattled last month after the Central Bank put Imperial, a mid-sized lender, under management due to fraud.

Dr. Njoroge told the Finance Committee of the National Assembly that the review of the penalties will be a part of the bank’s plan to strengthen supervision of lenders in the wake of the collapse of Imperial Bank.

He also admitted that the regulator missed the problems at Imperial Bank.

Gerald Nyaoma, the Director of Bank Supervision at the Central Bank said the details of the harsher penalties will be worked out at a later stage.

“It has to go through the legislative process so we will be making proposals over the coming one year to go to Parliament,” Nyaoma said.

The Central Bank may consider publishing details of penalties against banks that violate laws, only after the fact, in order to avoid a run on any institution facing regulatory actions.

Njoroge told lawmakers that Kenya has 42 banks in which 25 banks have since then discontinued its services and called on an urgent need to boost supervision to prevent another failure.

The harsher penalties come barely weeks after fraudulent withdrawals and other illegal transactions at Imperial Bank that amounted to more than 34 billion shillings over a period of 13 years.

This led to the Kenya’s Central Bank to order privately-owned Imperial Bank to be put under management after the board alerted it to malpractices at the mid-sized lender.

More than 20 companies and a number of individuals were linked to the fraudulent activities that began in 2002.

 

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banks kenya CBK money penalty penalities

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