CBK under pressure to reconstitute its board

By John Oyuke

Central Bank of Kenya (CBK) is under intense pressure from Washington to reconstitute its board, which has not met since September last year.

Further, the International Monetary Fund (IMF) wants the bank to appoint a new audit committee to "strengthen" its internal controls.

In its report under the extended credit facility, the Fund indicated that though CBK has addressed some of the concerns raised by its safeguards assessment, but more needed to be done to strengthen its internal controls.

Safeguards assessments policy, which has been an integral part of the Fund’s lending operations since 2002, focus on whether central banks adhere to global good practices in financial accounting and reporting.

According to the report, following discussions with officials of Kenya on economic developments and policies that ended on May 24, 2011, three board vacancies were filled in April and audit committee members subsequently nominated.

The last two board appointments were made mid last month, the report added. The team reviewed the reliability of financial information, which was temporarily hampered during the transition to a new accounting system.

It recommended enhanced monitoring of programme data reports going forward, along with internal audit review of reporting procedures on a priority basis.

Further, it also reviewed controls over currency printing and delivery to the CBK and recommended additional audit measures to ensure security and value.

The matter of CBK board first emerged recently when the re-appointment of Prof Njuguna Ndung’u as Governor of the bank took a political angle.

The body — which regulates the financial sector — has been operating without a board of directors, the term of the previous board members having expired last September and January this year.

Political rivalries

Though there has been no impact on the market so far, there was fear that if the appointment process got entangled in political rivalries, the aftershocks would reverberate across many sectors.

The board at the CBK is particularly crucial in any pending appointment given that it is the body that is legally required to assess the performance of the current holder of the office — who qualifies for reappointment — and advise the President accordingly.

It consists of the governor, his deputy, PS Treasury or his delegate as a non-voting member and five non-executive members.

Like the governor, the deputy is an appointee of the President with a four-year renewable term. The board is charged with the responsibility of evaluating the performance of the governor besides formulating policy.

That mandate, however, does not include monetary policy formulation – which is the territory of the bi-monthly Monetary Policy Committee that is chaired by the governor.