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One-Third of Kenyan Banks Violating CBK Rules
One-Third of Kenyan Banks Violating CBK Rules
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One-Third of Kenyan Banks Violating CBK Rules

Money254 Team
May 27, 2021

It’s been a busy week in business so far. Banks have been swimming back into profitability over the first quarter of 2021, a record three-year rise in number of accounts with more than Ksh100,000 was recorded, a third of Kenyan lenders have been flagged for flouting rules as the lending benchmark rate is retained for the 8th month in a row, and more. 

Today, we take a quick dive back into the most significant business news in Kenya over the last week and how these happenings may affect your money. 

Bank Profits Soar

Despite the economic slowdown occasioned by the Covid-19 pandemic, commercial banks seem to have found a way to swim out of the pandemic’s impact on profitability with an impressive growth in net profits for the first quarter of 2021.

Equity Bank - now Kenya’s most profitable lender - saw its net profits rise by an incredible 64% for the period between January and March 2021 to Ksh8.7 billion as compared to Ksh5.5 billion over the same period last year. 

Equity’s performance has been attributed to it’s aggressive expansion into foreign subsidiaries and what group CEO James Mwangi says is prudent management of expenses even with a backdrop of a year (2020) where earnings across the banking sector plunged.

With the August 2020 acquisition of Congo’s Banqué Commerciale du Congo, Equity became the first Kenyan bank to grow its balance sheet beyond Ksh1 trillion. 

The Group's total income grew 31% to Ksh25.5 billion as compared to costs that only increased by 8%. Mwangi says the lender pushed more of its business to the Treasury and non-funded income. 

It’s closest rival, KCB group also recorded a marginal 1.8% increase in net profit over the same period at Ksh6.37 billion as compared to Ksh6.26 billion the previous year. It’s profits were, in part, suppressed by lower commissions and fees on short-term digital loans.

Absa Bank Kenya’s net profits rose 23.7% over the same period to Ksh2.42 billion as compared to Ksh1.95 billion last year. This, attributed to end of separation costs from London-based Barclays Plc and a growth in net interest income as its loan book rose by 7.5%

Kenyans with over Ksh100,000 in their bank accounts 

How much is in your bank current or savings account right now? Well, as you consider that, the latest Central Bank of Kenya (CBK) data shows that as of December 2020 roughly 1.69 million accounts in Kenya held more than Ksh100,000. 

This is an 8.7% increase as compared to last year representing an additional 134,000 accounts attributed to increased saving and spending cuts by Kenyans in the face of job and income uncertainties occasioned by the Covid-19 pandemic. 

While it was expected that the number of high-quality accounts would reduce in 2020, the year actually recorded the highest rise in three years despite the economic slump. 

Between the onset of the pandemic in March 2020 and January 2021 Kenyan households and businesses had stockpiled over Ksh483 billion in savings - the biggest in more than a decade. This a reflection of the pandemic’s impact on Kenyans’ propensity to precautionary spending as well as thinner investment opportunities. 

In the preceding similar period, savings only grew by Ksh224.6 billion. Gross deposits in the banking sector grew by 12% to Ksh4.03 trillion by the end of January as compared to Ksh3.55 in the previous similar period. 

With reduced spending and investment uncertainties, Kenyans have been adding on average Ksh1.32 billion in deposits daily, as compared to Ksh61.5 million prior to the pandemic. 

One-Third of  Kenyan Lenders Flouting Banking Rules

Despite this seemingly positive outlook of the Kenyan banking sector, the CBK’s Bank Supervision Annual Report 2020 that was published on Wednesday, shows that a third of Kenyan lenders have been flagged for non-compliance with various banking rules and regulations. 

The regulator flagged 13 banks out of the 39 in the industry for flouting compliance rules largely related to failing to raise fresh capital - a situation attributable to increased loan defaults and heightened losses. 

Without disclosing the names of the offending banks, the regulator cited some of the incidences of non-compliance as follows

  1. Single obligor limit - Nine banks lent a single borrower over 25% of the core capital. This is a violation of Section 10 (1) of the Banking Act - a similar number was found in breach of the same law in 2019.
  2. Prohibited business - Five banks were found to have invested more than 20% of their core capital in land and buildings - a reduction from seven in 2019.
  3. Capital adequacy requirements - Three banks were found to be operating below the minimum core capital of Ksh1 billion. CBK data shows Consolidated Bank, First Community and Spire banks’ core capital came below Ksh1 billion. 
    Five banks failed to meet the statutory minimum required ratio for core capital to total risk-weighted assets of 10.5%.          
    Five banks failed to meet the statutory minimum required ratio for core capital to deposit ratio of 8%. 
  4. Insider Lending - Two banks were found to have lent a single insider borrower more than the upper limit of 20% of core capital. Five banks were found guilty of this in 2019.
    - Another bank was found guilty of exceeding the total insider borrowing limit of 100% of core capital. This is compared to four banks in 2019. 
  5. Foreign exchange exposure - Two banks were found guilty of failing to maintain foreign exchange exposure below 10% of core capital. In 2019, four banks were flagged for this violation. 
  6. Liquidity management - Two banks failed to maintain the minimum statutory liquidity ratio of 20% down from four in 2019.

Lending Rate 

The CBK on Wednesday also retained the benching lending rate at 7% for the eighth month in a row with the Monetary Policy Committee noting that the regulator’s prevailing policies continued to support economic recovery. 

The reserve bank projects inflation will remain well within the government’s target range of between 2.5 and 7.5% on lower food prices and muted demand-side pressures. 

Exports registered a 4.4% growth in the period leading to April this year as compared to the same period last year. This, supported largely by manufactured good receipts and horticulture. 

Nevertheless, credit to the private sector dropped to its lowest in 13 months in March signalling continued uncertainty in the local business environment. 

A CBK survey shows private sector credit grew at a rate of 7.65% (annualised) - the slowest growth rate since february 2020 (7.60%). Analysts predict a continuation of slow growth in the short-run as lenders prefer to lend to the government through securities avoiding the risk of non-performing loans (NPLs). 

That said, the ratio of NPLs has marginally improved from 14.5% in February to 14.2%. 

CRB Requests

Meanwhile, inquiries for borrower profiles from the Credit Reference Bureaus (CRBs) increased by over 20% (5.06 million) in 2020 as lenders tried to determine who to lend to based on their ability to pay. 

CBK Annual data also shows a heightened increase in credit report requests by Kenyans taking advantage of the once-a-year free credit report entitlement from CRBs. 

Individual credit report requests rose by 34% (888,647) over the period.


As we come towards the close of May, you will only have one month to file your tax returns for the year 2020.

The Kenya Revenue Authority (KRA) had earlier in the month warned that Kenyans who fail to file their returns by June 30 risked losing their KRA PIN which would effectively lock one out of crucial services like opening a bank account, land and motor vehicles registration, company registration among others. 

You can learn how to file your taxes online via our step-by-step guide here.

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