The Central Bank of Kenya (CBK) is tightening the local financial regulations that will see banks fined Sh20 million for flouting set regulations.
In the new changes that the regulator has submitted to the Attorney General for approval, local banks that will be found culpable for loss of customer deposits, will now part with Sh20 million from the Sh1 million currently in place.
The review follows by senators who said that the Sh1 million fine is too little, and has failed to deter banks form acts that have led to loss of customer funds.
CBK governor Kamau Thugge while making submissions to the Senate Committee on Finance and Budget said that the regulator in among other initiatives plans to set up a real-time system that will also monitor transaction fees and interest rates.
The committee chairman Ali Roba (Mandera senator) questioned whether the penalty was based on a percentage of the amount in question or is just a standard rate.
“I felt the penalties are not sufficient to deter banks and for that reason I have asked my team to review the penalties to Sh20 million for each violation. Those recommendations are now with the Attorney General to make sure he finalises on them and will ultimately come to parliament for approval,” said Thugge.
The proposed changes come in the wake of creased complaints by customers over "disappearance" of money in the accounts.
Nominated senator Maureen Mutinda, who is the committees vice chair said in a recent move, a customer at a major local bank lost about Sh800, 000 from his account, funds that were refunded after probe into the matter was commenced.
She questioned why the regulator is yet to penalise the bank following the incident.
Mutinda had sought answers over fraudulent withdrawal of funds from customers’ accounts from various local banks, the measures that CBK has put in place to address the matter and actions taken to compensate customers.
Thugge acknowledged that fraud has increased in the banking sector and investigations are on-going over several cases including the one raise by Mutinda and a decision will be made in due cause.
“There has been a spike in fraud in the banking sector and this is due to online banking and forgeries, we have issued prudential guidelines on customer protection which requires banks to address these complains using prescribed standards,” added Thugge.
CBK deputy director for bank supervision, Matu Mugo said they would enhance IT audit among banks to increase compliance.
“Beyond the penalising we also want to ensure that whatever gaps are identified are also remedied. Currently the penalty is Sh1 million per violation,” said Mugo.
An administrative sanction that banks will face in case they are found culpable will include restriction on their planned branch expansion.
According to the CBK's Bank Supervision Annual Report 2022, the banking regulator last year fined 13 commercial lenders for improper practices.
The number of rogue lenders, which the CBK did not name, rose by four compared to those fined in 2021 for various breaches.
The CBK's regulatory filing shows that the 10 lenders failed to comply with regulations limiting loans to a single borrower to no more than 25 percent of their core capital.
Five banks breached the rule prohibiting total insider borrowings exceeding 100 percent of core capital.
One commercial bank violated CBK's Prudential Guideline on Corporate Governance, which mandates a minimum of five directors with at least three-fifths being non-executive directors.
Another commercial bank contravened the Banking Act by lending more than 25 percent of total deposits to real estate, resulting in a fine.
CBK said appropriate remedial actions were taken against the implicated institutions.
The governor was given two week to present the list of banks affected by irregular withdrawals of customers’ funds, amount of money lost and number of customers affected.
