CBK Governor Explains New Normal of the Kenya Financial sector

David Indeje

10 years ago

The Kenya financial sector is remains sound and resilient, supported by strong macroeconomic fundamentals says Central Bank of Kenya Governor Dr. Patrick Njoroge despite some difficulties witnessed last year culminating in the placement under receivership of three banks (Dubai Bank, Imperial Bank, and Chase Bank).

However, he says with the measures that were taken to strengthen the sector has placed it in the ‘New Normal’ he explains in an op-ed in the Business Daily as:

Transparency

First, greater transparency on the part of banks to ensure public confidence. This entails, among others, ensuring that banks’ financial statements are credible and reflect a true and fair view. Transparency also extends to other disclosures by banks on their corporate governance and risk management structures.

In this regard, CBK has enhanced the disclosures by banks on their significant shareholders. Banks are now required to disclose details of significant shareholders who own five percent or more shareholding on their websites.

Shareholders are at the core of instilling corporate governance. The disclosure of shareholders signals adherence to corporate governance as well as instilling confidence and stability in specific banks and the sector as a whole.

At a minimum, the names, shareholding levels, composition of local and foreign ownership as well as group structures, for banking groups, should be disclosed.

Read: CBA Launches New and Affordable Property Finance Proposition

Governance

Second, stronger governance with clearly demarcated responsibilities. It is only when all stakeholders of banks (shareholders, board of directors, management and external auditors) play their roles effectively that the performance of banks will continue on a positive trend. CBK has, therefore, insisted on clear demarcation of roles among bank stakeholders. It has been strengthening its supervisory practices, including off-site surveillance, to ensure that banks practise effective corporate governance.

Business model

Third, encouraging effective business models. Continued resilience of banks can only be realised when they have sound business models. The business models should be strengthened to accommodate new business lines and innovations. This informs the drive by CBK to ensure that they maintain sufficient capital to cater for existing and potential risks and their market niche. This informed the introduction of a 2.5 per cent capital conservation buffer effective January 2015.

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