Signs of hope in the Kenyan banking industry are surfacing after the Central Bank of Kenya’s (CBK) moved to provide cash to any needy commercial or microfinance bank. Kenya Bankers Association chief executive Habil Olaka said the facility would go a long way in restoring confidence in the sector.
“This has come at the right time because we needed to give confidence to the market that the government and Central Bank will not allow an institution that otherwise has got a sound base to be pulled down because of rumours, for example, circulating in the social media when its actually not their fault,” Mr Olaka said in interview.
He disclosed that in the last few days a section of lenders had experienced capital flight due to perceived size and quality following panic.
“Given the information that was circulating around, especially on social media some banks were being profiled, therefore, causing a lot of panic among customers. Customers had begun withdrawing money and putting it into banks perceived as strong…even a strong bank if subjected to a run it will come down,” said Mr Olaka.
Experts said the cushion was long overdue and is in line with the best practice in advanced financial jurisdictions like Europe and America.
CBK Governor Patrick Njoroge said the facility would ensure the solvency of financial institutions and restore confidence in the banking system. “We will avail this facility for as long as is necessary to return stability and confidence to the Kenyan financial sector. We have confidence in the rigour and strength of our banking sector and will continue to monitor and oversee full compliance to our laws and regulations,” he said.
The governor, however, maintained that banks would still be expected to comply fully with prudential guidelines and that rogue bankers would be punished. CBK placed Chase Bank under receivership on Thursday last week after the small sized bank was unable to honour its obligations following a run.