CBK WANTS BANKING LAW AMENDED

The Central Bank of Kenya has proposed comprehensive amendments to the Banking Act that, among other things, would enhance its independence.


Central Bank of Kenya Governor Njuguna Ndung’u addresses particpants at the conference yesterday.
Photo/ANTHONY KAMAU
The amendments will also expand the ‘permissible activities’ of banking institutions, introduce consolidated supervision and establish provisions for prompt corrective action.

They are aimed at bringing the Central Bank of Kenya (CBK) in line with international best practice, while enabling it to meet the dynamic needs of the banking industry. The amendments are necessary because of the evolution and complexity of the structure of banking institutions due to their business linkages with non-bank financial associates, affiliates and subsidiaries.

These linkages affect the soundness of the banking industry, said CBK Governor Njuguna Ndung’u. He added that CBK’s supervisory approach has traditionally viewed banks as stand-alone entities.

“The CBK is developing a consolidated supervision framework which will address the risks arising from the activities of the conglomerate,” Prof Ndung’u told the 7th East African Banking conference at a Nairobi hotel yesterday.

The meeting has attracted delegates from Kenya, Uganda, Tanzania, Malawi and Rwanda. The bank is currently undertaking various initiatives within its 2006-2009 strategic plan, to ensure full compliance with prerequisites of Basel II implementation.

Of the critical importance has been the shift to Risk Based Supervision (RBS) which began in 2004. This supervision focuses on assessing the adequacy of banks risk management frameworks in identifying, measuring and mitigating inherent business risks.

Prerequisites for Basel II implementation include full implementation of Basel I — issued by the Basel Committee in 1988, adoption of RBS and adherence to the Basel Core Principles for Effective Banking Supervision. The move to Basel II will ensure that solvency of the banking sector is determined in more precise terms, taking into account most of the critical risks that banks are exposed to.

Raising capacity

Prof Ndung’u called on the banking industry in the region to beef up its capacity to enable it deal with money laundering, itself estimated at between $590 billion and $1.5 trillion by the International Monetary Fund.

“Due to their confidentiality principle and their capability to handle huge cashless transactions and transmit funds efficiently, banks are normally targets of money laundering," he said.

Kenya has set out seven key measures to tackle it, in addition to drafting the Proceeds of Crime and Money Laundering (Prevention) Bill, 2007 currently being debated by Parliament.


SOURCE: DAILY NATION