The number of commercial banks in poor financial health in Kenya grew to 13 last year after more lenders failed to maintain the required capital levels that act as guardrails against a bank run, underlining the task ahead for the new Central Bank boss.
The increase translates to a 44 percent rise compared to the nine lenders found to be in breach of critical supervisory and regulatory requirements in 2021, a new report by the Central Bank of Kenya (CBK) shows.
The CBK, which did not name the affected banks, said the financial breaches it found included over-lending to a single borrower, excessive insider lending, over-lending to the real estate sector, too much foreign exchange exposure and the failure to keep aside adequate capital for high-risk loans.
“During the year ended December 31, 2022, thirteen commercial banks were in violation of the Banking Act and CBK Prudential Guidelines compared to nine commercial banks in the previous year 2021,” said CBK in the Banking Supervision Report 2022.
The data also gives perspective on how the liquidity crunch, aggravated by a dysfunctional forex interbank market, pushed core capital levels for some of the banks to drop, leading to several breaches in capital and liquidity ratios.
Most of the breaches were on capital adequacy requirements, which are ratios that the CBK, the financial sector regulator, uses to evaluate the financial health of a commercial bank.
Lenders were also in breach of investing more in real estate and land and buildings, beyond the statutory limits.
A tight liquidity saw a lot of financial institutions increase their borrowing from the lender of last resort with CBK’s advances to commercial banks rising from Sh71.8 billion in June last year to a record high of Sh111.7 billion by the end of December.
