Six firms fail to meet Central Bank’s rules

Six commercial banks failed to meet standards set by the Central Bank as at the end of 2012.

According to the annual Bank supervision report released by the Central Bank, some of the six banks, which include Equatorial Commercial Bank and Dubai Bank violated the Banking Act and Central Bank’s prudential guidelines as at the end of December last year.

“This translated into twelve incidence of non-compliance affecting ten sections of the Banking Act and prudential guidelines,” the bank said in the report released Wednesday.

In 2011, only three banks were non-compliant with four requirements stipulated in the Banking Act.

Both Equatorial and Dubai banks violated the minimum core capital requirement, which is set at Sh1 billion as at the end of last year.

Dubai Bank’s core capital stood at Sh893 million while Equatorial’s core capital stood at Sh548 million as at the end of last year.

How banks erred

Equatorial’s total capital to risk weighted assets ratio stood at 8.9 per cent as at end of December 2012 against requirement of 12 per cent, with the core capital to risk total deposits standing at a ratio of 4.23 per cent as at end of December 2012 against the required 8 per cent.

The bank’s core capital to risk weighted assets ratio also stood at 5.7 per cent as at end of December 2012 against Central Bank requirement of 8 per cent.

Central Bank further said the six banks, which it did not name, violated the requirement that restricts lending to a single borrower to an amount over 25 per cent of the core capital,  lending money to insider borrowers without use of collateral  and ratifying single insider borrowings to an amount over 20 per cent of core capital against regulations.

One other institution violated the regulation requiring institutions’ investment in land and buildings not to exceed 20 per cent of core capital.