Central Bank of Kenya acts to avert deeper crisis in banking sector

NAIROBI: The Government has stepped in to cushion the banking sector from sinking deeper following the collapse of Chase Bank.

Central Bank of Kenya (CBK) Sunday announced it would provide a credit facility from today to banks or micro-finance institutions faced liquidity problems.

"From Monday, we will offer a facility to any bank or micro-finance institution that comes under liquidity for no fault of its own. We will offer this facility for as long as is necessary," said Governor Patrick Njoroge.

Mr Njoroge also moved to reassure the markets caught off-guard by the Chase Bank's troubles that the sector is healthy and would be back to normalcy "as soon as possible".

Although he did not specify the amount, Njoroge said the "facility would be available for as long as necessary to provide a sense of calm and reiterated that the financial sector is stable".

The mid-sized Chase Bank was the third lender to be taken over by CBK in nine months, fuelling worries over the health of the sector whose gross non-performing loans rose sharply last year.

Further Trouble

The latest move by CBK is meant to forestall further trouble in the banking sector as some banks are said to be reluctant to lend their peers during the current anxious period.

The failure to lend to each other could fuel more trouble for banks seeking short-term liquidity to meet their financial obligations.

CBK hopes to step in and bridge any financing gap that may arise to ensure the sector's smooth operations.

CBK said it was deeply concerned about the uncertainty that continues in the financial sector, saying the crisis was sparked by unconfirmed information circulating online.

He further warned that heads of financial institutions would be dealt with for not complying with the regulations of the banking sector.