Central Bank hires staff to check rogue lenders
What you need to know:
- Regulator blames the department’s tolerance of poor corporate governance for banks' collapse and not its supervision capacity.
- The CBK sought assistance from external auditors and international institutions such as the IMF to investigate the sector after the fall of Imperial Bank.
The Central Bank of Kenya (CBK) has hired 15 new staff members in its supervision department in the wake of the recent collapse of three banks.
However, the regulator blamed the department’s tolerance of poor corporate governance for the banks’ collapse and not its supervision capacity.
The CBK had sought assistance from external auditors and international institutions such as the International Monetary Fund (IMF) to investigate the sector after the fall of Imperial Bank. This has brought to light the regulator’s shortcomings.
The CBK late last year advertised positions in the department in a bid to plug holes in the system.
“We need to get more people who have the skills; we have 15 people coming on board and we are not going to stop there,” said CBK Governor Patrick Njoroge.
OFFICERS' INTEGRITY
The integrity of officers working in the supervision department had also come into question, with Imperial directors claiming they were defrauded by the lender’s late chief executive Abdulmalek Janmohamed in cahoots with CBK workers.
Sources have previously indicated that four officers in the supervision department were interdicted.
Dr Njoroge has sought to win back public confidence by blaming the collapse of Dubai, Imperial and Chase banks on lenient enforcement of regulations rather than lack of identification of the weaknesses.
The governor said the CBK had detected problems at Dubai Bank as early as 2011 but the previous regime, headed by Njuguna Ndungu, opted for "forbearance", fearing the ripple effects of shutting down the lender.
“The information [about concerns at the three collapsed banks] was known to us but instead of taking quick action, we minimised the problem – what we call forbearance,” said Dr Njoroge.
He faulted his predecessor’s stance on forbearance, arguing that it gave insiders time to withdraw their cash on getting indications of imminent collapse.
QUICK ENFORCEMENT
Dr Njoroge disclosed Sh400 million was withdrawn from Chase Bank a week before it was shut down, hinting the withdrawal was made by an insider.
The CBK said it was killing the culture of forbearance with quick enforcement of corrective measures, citing the closure of Imperial and Chase banks.
The regulator had been forced to rely on external auditors to carry out some of its mandate by giving them specific mandates as it admitted its deficiency.
It also placed a moratorium on the licensing of new banks until it improves its supervision abilities to match the industry requirement.
Dr Njoroge said he was not ready to lift the moratorium, signalling the issues at the supervision department were yet to be resolved.
He cited the need to improve information systems to support analysis and the strengthening the process of onsite checks.
The regulator’s bid to reinforce the supervision department is likely to see the CBK poach staff from commercial lenders as it seeks experienced persons.
