Kenyan lenders breached rules after Chase Bank collapse

By The Eastafrican

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KENYA- Twelve banks in Kenya failed to comply with banking regulations in 2016 due to panic run on deposits after the collapse of Chase Bank, a mid-tier lender.

The Central Bank of Kenya (CBK) report shows that the lenders, which are not named, breached the liquidity ratio.

According to CBK, three banks violated the Banking Act by lending more than 25 per cent of their core capital to a single borrower.

Two other lenders were in violation of the Banking Act and CBK Prudential Guidelines on capital adequacy, which require an institution to maintain minimum core capital to total risk weighted assets ratio of 10.5 per cent and total capital to total risk-weighted assets ratio of 14.5 per cent.

One bank did not meet the law requiring it to maintain a minimum core capital of $10 million, while seven others failed to keep a liquidity ratio of 20 per cent.

“This was observed after placement of Chase Bank Limited into receivership causing panic withdrawal of deposits in small and medium banks. However, the situation normalised later in the year,” CBK said.

CBK said two lenders invested more than 20 per cent of their core capital in land and buildings against its Prudential Guidelines on prohibited business.

Two others were castigated on corporate governance for failing to have every member of the board attend at least 75 per cent of meetings in the financial year.

“The appropriate remedial actions were taken on the concerned institutions by the CBK in respect of these violations,” CBK said.

The regulator usually issues a warning or a penalty depending on nature of the violation.