New norm in Kenyan banking system

The Central bank of Kenya (CBK) has created a liquidity support framework with the aim of helping out banks and microfinance banks that may be in need of assistance if they find themselves limited in terms of resources.

The central bank of Kenya governor, Patrick Njoroge at a press conference at his offices at the CBK premises last month explained on how the new liquidity support framework is important especially after the case of Chase bank which left many depositors in a state of worry after it was put under receivership. The governor emphasized on the framework saying it is there to return confidence to the people that banks are still safe.

He said that the confidence of the people in banks is very important since when people lose trust in a bank they may lead to its collapse because of because of a run on, citing the example of Chase Bank.

As a counter measure, the framework was created with the ability to deploy overwhelming financial resources to any bank or microfinance bank that may have liquidity issues that do not arise of its own faults. The governor hinted that a few banks were already inquiring on the rules and regulations that govern the framework to clarify if they would take it up.

“We will avail this facility for as long as it is necessary to return stability and confidence to the Kenyan financial sector,” the CBK said in a press statement.

He said the collapsing of Chase Bank would have been avoided but owing to management woes and its inability to deliver its financial obligations, it had to be put under receivership.

Chase Bank management was wrong to publish financial statements that failed to show the involvement of the auditors as well as their opinions. This is what caused the auditors to report to the CBK as the management had failed to adhere to the rules and regulations of the banking Act.

Managing bodies in banks were advised that they should discuss their credit policies especially on insider lending to ensure that they do not end up in Chase bank’s position. He also called on the board of directors and shareholders to be keen and to ensure insider lending would not surpass its limit which is 20% on total capital in order to avoid losses and in worst case scenario, to avoid losing the confidence of their depositors.