The Central Bank of Kenya (CBK) released a report showing it fined 11 commercial banks for breaching important rules. These rules covered lending, corporate governance and capital requirements which are all meant to ensure our banking system is stable and trustworthy.

While this may seem worrying, there’s a gradual improvement in how banks are managing these issues, so the CBK is doing its job to keep the financial system in check.

Why Are These Rules Important?

The rules the CBK enforces are meant to keep our financial system safe and to ensure banks are managing their resources well. Some of the breaches were more serious than others and they highlight the challenges in the banking sector.

Here’s what went wrong:

• Lending More Than Allowed: One of the most common breaches was banks lending more than 25% of their core capital to a single borrower which is a big no no. This rule is to ensure banks don’t take too much risk with one customer. Nine out of the 39 operational banks in Kenya were found guilty of this, mostly because their core capital dropped after some banks reported losses.
• Ownership Concerns: Three banks were fined because one person owned more than 25% of the bank’s shares which violates the Banking Act, Section 13. This rule is to ensure no single individual has too much control over a bank, fair governance. Interestingly this was a bigger issue than last year where only one bank faced this violation. High ownership stakes can sometimes lead to conflicts of interest which is why this rule exists.
• Capital and Liquidity Issues: There were also concerns on capital adequacy—whether the banks had enough money set aside to absorb any potential losses. Five banks failed to meet the minimum capital requirements and some didn’t have enough liquidity (the money they need to meet their short term obligations).

What Does This Mean For You?

The CBK is doing this to ensure your money is safe and banks are being responsible with how they lend and manage their funds. The rules may seem technical but they have a direct impact on the stability of the banking sector which in turn affects how safe your deposits are and how well the banking system functions overall.For instance if a bank lends too much to one person or entity and that person defaults the bank may not have enough money to absorb the losses. This can lead to financial instability which we’ve seen elsewhere.

On the other hand high ownership stakes in a bank by one individual can lead to conflicts of interest or decisions that benefit the owner at the expense of other shareholders including you and me.

What’s Next for CBK?

CBK has already taken action against the banks involved but also said the sector needs to do better. The regulator plans to increase the minimum capital requirement for banks to KSh 3 billion by December 2025. This is part of a broader effort to make Kenyan banks stronger and more resilient.

CBK also said it will keep a close eye on the sector and impose penalties for any future breaches. While CBK didn’t name the banks involved, the penalties range from KSh 200,000 for individuals to KSh 5 million for institutions depending on the severity of the breach.

The Bigger Picture: How Does This Affect You?

Fines are important but these regulations ultimately help maintain a stable financial environment. A well regulated banking sector means you can trust your bank to manage your money well whether you’re saving for the future, applying for a loan or just making day to day transactions.

Moreover these regulations help to boost investor confidence in Kenya’s financial system. If banks are well capitalized and follow good governance rules they’ll be able to withstand economic shocks and continue to operate smoothly.

Looking Ahead: What’s Next?

CBK’s ongoing regulatory actions reflect the need to adapt to a fast changing financial landscape. As the sector grows and evolves so will the rules and guidelines that govern it. This is good news for everyone who relies on Kenya’s financial system as it means the sector will be robust, competitive and able to support the country’s long term growth.

But the fact that some banks are still struggling to meet these rules means there’s more work to be done. But with stronger oversight we can expect a safer and more reliable banking environment in the future.