The number of commercial banks in Kenya with poor financial standing rose to 13 last year as more institutions failed to maintain the appropriate capital levels that act as barriers against a bank run, illustrating the challenging task that the incoming Central Bank head faces.
According to a recent Central Bank of Kenya (CBK) report, the increase represents a 44 percent increase over the nine banks discovered to be in violation of critical supervisory and regulatory criteria in 2021.
“During the year ended December 31, 2022, thirteen commercial banks were in violation of the Banking Act and CBK Prudential Guidelines compared to nine commercial banks in the previous year 2021,” said CBK in the Banking Supervision Report 2022.
Eight banks were discovered to have violated the law’s obligation to maintain core capital equal to at least 8% of all deposits during the examination period. The number was boosted from three in 2021.
Five banks were found guilty of lending an employee more than 20% of their core capital, up from three in 2021.The banks that violated the capital adequacy ratios were not included in the Banking Supervision Report 2022.
With the lender of last resort’s advances to commercial banks increasing from Sh71.8 billion in June of last year to Sh111.7 billion by the end of December, many financial institutions increased their borrowing as a result of a lack of liquidity.