Featured Product

    IMF Publishes Reports on the 2018 Article IV Consultation with Kenya

    October 23, 2018

    IMF published its staff report and selected issues report under the 2018 Article IV consultation with Kenya. Directors commended the authorities for progress made in strengthening the banking supervision framework and encouraged continued efforts in this area. They saw merit in further measures to develop the bank resolution framework and risk-based anti-money laundering and combating financing of terrorism (AML/CFT) supervisory tools.

    The staff report highlights that the interest rate controls have reduced bank profitability. The impact of interest rate controls on the performance of banking sector has largely fallen on smaller banks and does not pose a systemic risk at this time; however, with the system in aggregate remaining sound, the interest rate controls pose risks to financial stability if maintained for much longer. Non-performing loans (NPLs) have continued to increase and liquidity support by the Central Bank of Kenya (CBK) to banks remains relatively high. NPLs increased to 12.4% in April 2018, from 9.6% a year earlier. Banks and corporates appear relatively resilient to shocks in the corporate sector. Stress tests suggest that Kenya’s large non-financial corporations, which have enjoyed strong growth and profitability in recent years, are resilient to shocks and Kenya’s banks are resilient to corporate sector shocks. Even under extreme shock scenarios, banks would experience an increase in NPLs but would not experience a severe deterioration of capital levels

    The report further notes the authorities continue to strengthen the banking supervision framework. Capital and liquidity positions of commercial banks and micro finance institutions have been improving. Specialized on-site inspections of banks’ ICT systems are being implemented, in addition to the IFRS 9 standards (although IFRS 9 will be phased in over a five-year period). CBK also recently issued a guidance note to banks on cyber security. Staff encourages CBK to continue to implement remedial plans for banks that are not compliant with capital and liquidity ratios, including requiring banks to present credible restructuring plans to restore prudential ratios in a time-bound manner. Additionally, the report mentions that the authorities are also making progress with AML/CFT reforms. Kenya’s financial supervisors are working to develop risk-based AML/CFT supervisory tools and to enhance the operations and procedures of Kenya’s financial intelligence unit, which should help to strengthen anti-corruption efforts. While reporting entities are being encouraged to undertake risk assessments for AML/CFT, Kenya has not yet conducted a national risk assessment, which would help to better understand AML/CFT risks. 

    The selected issues report states that a deteriorating environment for corporates in Kenya would have a negative impact on the banking sector. A number of assumptions are made to assess the potential impact of stress test scenarios on the banking sector. Under a specific set of assumptions, the size of NPLs and that of losses/needed capital injection are calculated. Based on end-2016 figures, NPLs would increase to 12.3% in the baseline scenario, 12.9% in the adverse scenario, and 13.3% in the extreme scenario. Assuming a 100% risk-weighting on these items, the capital adequacy ratios would decrease, but remain healthy at 18.1% in all three scenarios. The exercise suggests that bank capital is adequate to withstand these shocks. The report highlights that the different stress test scenarios conducted for large corporates find that corporate resilience is solid and able to withstand the estimated shocks. In line with these findings, the banking sector also shows capacity to absorb these shocks. Under the adverse and extreme scenarios, the banking sector would experience an increase in NPLs, but would not see a severe deterioration of its level of capital.


    Related Links

    Keywords: Middle East and Africa, Kenya, Banking, NPLs, AML/CFT, IFRS 9, Stress Testing, Financial Stability, Article IV, IMF

    Featured Experts
    Related Articles
    News

    FDIC Proposes Amendments to Real Estate Lending Standards

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards.

    June 15, 2021 WebPage Regulatory News
    News

    ISDA Consults on Implementation of Fallbacks for Certain Swap Rates

    ISDA is consulting on the implementation of fallbacks for the sterling LIBOR ICE Swap Rate and for the USD LIBOR ICE Swap Rate.

    June 11, 2021 WebPage Regulatory News
    News

    BIS and BoE Launch Innovation Hub in London

    BIS and BoE launched the BIS Innovation Hub Center in London, which is the fourth new Innovation Hub Centre to be opened in the past two years.

    June 11, 2021 WebPage Regulatory News
    News

    ESRB Recommends Reciprocation of Certain Macroprudential Measures

    ESRB published recommendations on the reciprocation of macro-prudential measures in Belgium, France, Luxembourg, Norway, and Sweden.

    June 11, 2021 WebPage Regulatory News
    News

    US Agencies Set Out Unified Agenda for Planned Regulatory Actions

    SEC announced that the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions.

    June 11, 2021 WebPage Regulatory News
    News

    EC Publishes Regulation on Key Aspects of Implementation of SA-CCR

    EC published the Delegated Regulation 2021/931, which supplements the Capital Requirements Regulation (CRR or Regulation 575/2013) with regard to the regulatory technical standards specifying the method for identifying derivative transactions with one or more than one material risk driver.

    June 10, 2021 WebPage Regulatory News
    News

    BCBS Consults on Prudential Treatment of Cryptoasset Exposures

    BCBS is consulting on preliminary proposals for the prudential treatment of cryptoasset exposures of banks.

    June 10, 2021 WebPage Regulatory News
    News

    EBA Revises List of Validation Rules for Reporting

    EBA issued a revised list of validation rules under the implementing technical standards on supervisory reporting.

    June 10, 2021 WebPage Regulatory News
    News

    Banking Authorities and Private Sector Collaborate on Wholesale CBDC

    BIS Innovation Hub, BDF, and SNB announced that, together with a private-sector consortium led by Accenture, they will conduct an experiment using wholesale central bank digital currency (wCBDC) for cross-border settlement.

    June 10, 2021 WebPage Regulatory News
    News

    ESAs Publish Amended Implementing Standards on Mapping of ECAIs

    ESAs published two amended implementing technical standards on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs).

    June 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7093