Central bank mulls tougher penalties for rogue banks

folarin okunola

November 12, 2015 4:30 PM

The financial system in East Africa's biggest economy was rattled last month after the central bank put Imperial, a mid-sized lender, under management, due to fraud.

A view of evening traffic near Kenya's Central Bank offices in capital Nairobi November 10, 2015. REUTERS/Noor Khamis

Kenya's central bank is considering harsher penalties for commercial banks that flout the rules and it may publicise enforcement actions that it takes against errant banks, the central bank governor said on Thursday.

Patrick Njoroge told the finance committee of the national assembly the review of the penalties will be a part of the bank's plan to strengthen supervision of lenders in the wake of the collapse of Imperial. He has already admitted the regulator missed the problems at Imperial.

Gerald Nyaoma, the director of bank supervision at the central bank, told Reuters the details of the harsher penalties will be worked out at a later stage.

"It has to go through the legislative process so we will be making proposals over the coming one year to go to parliament," Nyaoma said.

The central bank may consider publishing details of penalties against banks that violate laws, only after the fact, in order to avoid a run on any institution facing regulatory actions.

Njoroge told lawmakers that Kenya, which he said has 42 commercial banks, has seen 25 banks go under in its history and therefore there was an urgent need to boost supervision to prevent another failure.

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