CBK has no IT staff to monitor banks amid crisis

The Central Bank of Kenya’s (CBK) unit charged with supervising lenders lacks a tech savvy team to watch over transactions amid a confidence crisis after the collapse of three banks, Parliament was told Tuesday.

Gerald Nyaoma, head of bank supervision department, told MPs that his unit lacks the expertise to audit banks’ Information Technology (IT) systems—which rogue and greedy directors have exploited to lend themselves billions of shillings of depositors’ funds, breaching banking regulations.

“I acknowledge the key role that ICT experts would play at the department and this is the advice I personally gave the governor (CBK head Patrick Njoroge),” said Mr Nyaoma.

“We initiated recruitment in December 2015 where we advertised for IT openings but are yet to conduct the interviews,” he added.

In the absence of the experts, he said, the CBK has had to rely on external auditors.

The closure of three banks in the last eight months has shaken up the confidence of depositors in the banking sector.

Chase Bank, Kenya’s 12th largest bank with deposits of nearly Sh100 billion, will re-open Wednesday after it was put under receivership in April 6.

Last August Dubai Bank, valued at Sh2.92 billion, collapsed followed closely in October by Imperial Bank which went down with Sh58 billion of depositors’ funds.

A weak CBK supervisory unit was blamed for failing to detect early enough banking executives who were busy cooking financial books to present a rosy picture to shareholders and cover up insider lending perpetuated by directors.

MPs reckon that a supervisory unit backed by ICT experts would have detected the malpractices at the infancy, rescuing depositors’ funds.

“How can a serious institution like the CBK investigate an ICT savvy institution like Chase Bank without being equipped with IT experts?” Posed Benjamin Langat, who chairs National Assembly’s Finance committee.

Banks have in recent years spent billions of shillings in upgrading their IT networks, easing paper work in their transactions.

Imperial Bank was placed under receivership after it was discovered that its senior management manipulated its IT system to conceal malpractices including irregular lending of Sh29 billion of depositors cash.

Investigations also showed that there were clear indications that there were cases of money laundering and cheque knitting schemes at the bank.

Chase Bank collapsed early this month following its inability to meet its financial obligation due to liquidity challenges.

Its executives chose to underreport insider lending by Sh8 billion thereby fooling regulators and the financial markets as to the bank’s health.

The troubled lender irregularly advanced Sh16.6 billion to various entities, most of them associated with insiders, without proper security - putting billions of shillings belonging to its 55,000 depositors at risk.

The CBK boss Patrick Njoroge recently blamed insider lending by bank executives for the confidence crisis in the banking sector even as President Uhuru Kenyatta attempted to cool depositors’ nerves.

“We will make sure we protect depositors’ money in all the banks,” Mr Kenyatta said.

Kenya has 42 commercial banks and one housing mortgage finance company.