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CBK Enhances Supervision of Kenyan Banks with Consolidated Supervision

Nairobi, Kenya - The Central Bank of Kenya (CBK) has taken a major step in enhancing the supervision of Kenyan banks by implementing consolidated supervision. This move aims to ensure that all risk exposures of a bank and its subsidiaries are taken into account, whether they arise within the bank itself or in related entities.

Background

According to a report released by CBK, the institution has been working on establishing a framework for implementing consolidated supervision since 2006. The move is aimed at meeting the Basel Core Principles and addressing the rapid expansion of Kenyan banks in the East African region.

Consolidated Supervision Framework

CBK requires financial institutions with significant group relationships to respond to issues highlighted in inspection reports within 15 days of presentation to their boards of directors. The response is used by CBK to develop a supervisory programme for the bank, which ensures that corrective actions are undertaken in a timely manner.

Additionally, CBK conducts quarterly reviews of each institution’s financial performance, focusing on performance and identification of unique risks that may have arisen in the intervening period. These reviews incorporate comparisons of the institution’s key financial indicators with those of peers and industry averages, as well as the results of stress tests.

Supervisory Colleges

In 2012, CBK developed a framework for establishing supervisory colleges for institutions with significant cross-border operations. The inaugural Supervisory College meeting was convened in October 2012, and the institution has since established supervisory colleges for all Kenyan banks with significant cross-border operations.

Objectives of Establishing Supervisory Colleges

CBK expects to achieve several objectives through the establishment of supervisory colleges, including:

  • Providing a better understanding of the risk profiles of banking groups
  • Making operationally effective information sharing and coordination provisions
  • Considering economic conditions affecting a banking group and individual group entities as part of macro-prudential analysis
  • Providing a foundation for crisis preparedness and contingency planning for emergency situations that might arise within a cross-border banking group
  • Assisting CBK in meeting its obligations as a home country supervisor and other supervisory college members in meeting their obligations as host supervisors

Conclusion

Overall, the implementation of consolidated supervision and the establishment of supervisory colleges are major steps towards enhancing the regulation and supervision of Kenyan banks, ensuring their stability and soundness, and promoting financial stability in the region.