1. PRESENTATION TO THE BOARD OF DIRECTORS OF DOMESTIC REGULATORS
CENTRAL BANK OF KENYA
PRESENTATION TO THE BOARD OF DIRECTORS OF DOMESTIC REGULATORS
PROF. NJUGUNA NDUNG’U
July 20, 2009

2. OUTLINE Objectives of CBK Structure of the Banking Sector
Key Initiatives and Achievements
Challenges
Areas of Cooperation
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3. OBJECTIVES OF CBK
Formulate and implement monetary policy directed to achieving price stability.
Foster stability, solvency and proper functioning of a stable market-based financial system.
Provision of efficient Payments System.
Support the Economic Policy of the Government.
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4. STRUCTURE OF THE BANKING SECTOR
The Structure of the Banking Sector is set out below;
Type of Institution
Number 1
Commercial Banks 43 2
Mortgage Finance Companies 3
Forex Bureaus
123 4
Microfinance Institutions 5
TOTAL
169
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5. KEY INITIATIVES AND ACHIEVEMENTS
a) CBK National Payment Oversight - Real Time Gross Settlement System (RTGS), Kenya Electronic Payment and Settlement System (KEPSS) launched in July 2005.
RTGS Advantages:-
Reduction and containment of systemic and other payment related risks.
Reduction of length of payment cycles for high and time critical value payments to same day settlement.
Provision of tools to commercial banks to enable them manage their liquidity efficiently.
Provide CBK with a better tool for monetary policy management.
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6. KEY INITIATIVES AND ACHIEVEMENTS...
b) Payment System- Clearing House- Cheque Truncation - imaging of cheques.
Intended to reduce/eliminate physical movement of cheques.
Endgame - Lower operating costs for banks and reduction in cheque clearing cycle.
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7. KEY INITIATIVES AND ACHIEVEMENTS...
c) Comprehensive Review of the Banking Act
The main reasons for the review is:
To align the Act to International Best Practice.
To expand the range of permissible activities.
To facilitate adoption of Consolidated Supervision.
Prompt Corrective Action.
To enhance CBK operational independence.
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8. KEY INITIATIVES AND ACHIEVEMENTS...
d) Enhancement of Minimum Capital
To support Government policy as envisaged in Vision strong, stable and efficiency banks that offer services to a wider public are required.
To realise this objective, the Law was amended requiring banks to gradually increase their minimum core capital to Kshs1bn by 2010.
Consolidation of banks expected – but more importantly, they should be strong in their market niche.
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9. KEY INITIATIVES AND ACHIEVEMENTS...
e) Harmonization of Regional Supervisory Practices
The five countries in the EAC have been working on initiatives aimed at harmonizing their supervisory and regulatory regimes.
MOUs to facilitate information sharing and Consolidated Supervision
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10. KEY INITIATIVES AND ACHIEVEMENTS...
f) Improved Access to the Kenyan Public
National Survey on Financial Access conducted.
Microfinance Act enacted and Regulations gazetted (One Microfinance Institution licensed).
Regulations on Credit Reference Bureaus Gazetted.
Expansion of branch network.
Proposal to allow banks to use agents incorporated in 2009 Finance Bill – Principal/Agent model of financial service delivery.
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11. KEY INITIATIVES AND ACHIEVEMENTS...
g) Automation of Bank Supervision Department Procedures
Electronic Submission of Returns.
Roll out of Banking Supervision Application (BSA)for data analysis.
Acquisition of an Electronic Working Papers Solution for the examiners.
Acquisition of Computer Audit Assisted Technique (CAAT) software, ACL.
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12. KEY INITIATIVES AND ACHIEVEMENTS...
h) Adoption of Risk Based Supervision Methodology - Focuses on assessing the adequacy of institutions’ frameworks to identify, measure and mitigate the inherent risks they face. - Appropriate risk assessment is important for the totality of the financial system – it has a peculiar contagion process
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13. CHALLENGES
a) Legislative Reform -Enactment of various legislations is critical to strengthening the existing legal and regulatory framework. Challenges have been posed in this area by the Parliamentary Calendar and getting buy in on some of the proposed changes from Legislators e.g. Anti-Money Laundering proposed Law still pending in Parliament.
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14. CHALLENGES...
b) Innovations/Changes in the Banking Sector Technological developments, customer sophistication and competition are driving change and innovations such as new products, outsourcing and centralization of operations in offshore centres. These changes are “stretching’’ the existing legal and regulatory framework.
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15. CHALLENGES... c) Public Expectations
The Kenyan public expects the CBK to ensure that their savings held even in institutions that are not within the purview of CBK are safe.
There are also expectations in the public domain that the CBK should intervene and reduce the perceived high level of fees and charges levied by banks.
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16. CHALLENGES... d) Poor Credit Culture
The sector’s level of NPLs is high although it has declined in the last few years. The high level of NPLs is due to
Weak institutions and poor risk assessment.
Information asymmetry problems.
Quality of such information - to allow appropriate processing.
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17. POSSIBLE AREAS OF COOPERATION
Information Sharing – Building a common information capital
Consolidated Supervision – Regulators can talk to each
Research and Publication
Consumer Protection
Anti-Money Laundering
Investigations and Compensation
Financial Stability Reporting
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18. CENTRAL BANK OF KENYA
THANK YOU
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