New rules to allow KBA blacklist errant banks from clearing house

KBA chief executive Habil Olaka told the Business Daily that the body will blacklist commercial banks that break code of ethics from the elite club, effectively locking them out of support.

“Given what has evolved in the market and given what kind of anxiety that has been created, and essentially pointing out that there could be areas of corporate governance issues, transparency and accountability we need to see how we can reinforce the system and what role can KBA play,” Mr Olaka said.

He stated that KBA wants to align its members to adhere to some set of standards and the critical thing was that the regulation should be enforceable and not depend on ‘moral suasion’.

The move, however, will be dependent on KBA members approving and adopting a new self-regulatory framework proposed by the lenders’ umbrella body at an AGM slated for June.

A bankers’ Clearing House is a system that transfers money between member banks which helps them transact business and get liquidity support when they require credit.

It is owned by KBA, which works with the Central Bank of Kenya (CBK) to operate it.

Expulsion will be punitive given that the interbank is already fraught with suspicion that has seen banks reduce lending to each other and forcing the CBK to intervene.

Fewer interbank transactions

According to the latest CBK data, the number of deals between banks fell to an average of eight in the wake of the collapse of Chase Bank from an average of 22 the previous week.

The value of money exchanged between banks fell from Sh19 billion in the week ending March 30 to Sh9 billion the week ending April 6. It stood at only Sh5 billion last week.

KBA also signed the “Code of Ethics for Business in Kenya”, developed on behalf of the private sector by Kenya Private Sector Alliance (KEPSA), Global Compact Network Kenya and the Kenya Association of Manufacturers (KAM).

Last year, President Uhuru Kenyatta endorsed the code as a key intervention towards addressing corruption and unethical practices within the public and private sector.

Kenyan banks are under pressure to put their houses in order after irregular financial reporting and fraud saw three lenders – Dubai, Imperial and Chase Banks – put under receivership by the regulator within a nine-month period.

“Central Bank of Kenya has stepped up, auditors have stepped up and as banks, we will also have to up our game,” he said.

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Credit: Business Daily