Henry Rotich's policy review clips Patrick Njoroge's powers at CBK

CBK Governor Patrick Njoroge

Treasury Cabinet Secretary Henry Rotich has clipped the powers of the Central Bank of Kenya boss to regulate the banking sector.

Mr Rotich is also in a new push to raise the minimum capitalisation for banks by five-fold to Sh5 billion. This latest policy measure was successfully fought off last year by immediate former CBK Governor Patrick Njoroge.

And to avoid any surprises, the CS wants to be involved in deciding when a lender is in trouble, and whether or not such a lender should be placed under receivership as was the case with Dubai, Imperial and Chase Banks.

“The bill further seeks to amend the Act to involve the Cabinet Secretary in the management, control and conduct of the affairs and business of an institution and enhance penalties as a deterrent factor in relation to offences under the Act,” Mr Rotich said in the Finance Bill currently before the National Assembly.

CBK has retained oversight powers over the banking sector including slapping sanctions and fines on violators of sector guidelines- another aspect that the CS wants to have a say in. It could be interpreted as the National Treasury’s response to Dr Njoroge independence in executing his duties. He has been described as uncompromising.

Widespread abuse

Bank executives have found it rough since Njoroge was appointed to head the CBK mid last year. But the governor has streamlined financial reporting that tended to overstate profits in what he terms as a ‘race to the bottom’.

In three months, the CBK boss had closed two banks over widespread abuse of banking guidelines, including undocumented lending to directors, senior staff and their cronies.

But the stern approach has been received with wide criticism within and outside the banking sector, possibly informing the proposals contained in the Finance Bill.

On the earlier proposal to raise the banking sector capitalisation to Sh5 billion, Njoroge said the move would kill small lenders.

Raising the capital requirements would also push banks into ‘forced marriages’ while the alternative proposal from CBK was to have natural mergers. But Rotich has already started off by lobbying legislators to agree with his proposal in his budget speech delivered last week.