Two Commercial banks give loans in excess of core capital – Central Bank of Kenya

Two commercial banks breached a Central Bank of Kenya (CBK) insider lending limit rule last year by giving loans to internal parties in excess of their core capital.

Each bank is required to have a core capital of at least Sh1 billion, with the funds forming an institution’s permanent capital.

The law prohibits banks from issuing credit facilities that are unsecured or provided to insiders such as employees, directors, and shareholders and which cumulatively exceed the core capital.

The rule is designed to avoid insider dealings that can expose an institution to collapse, hurting depositors and other parties.

“Two commercial banks were in violation of Section 11(1) (g) of the Banking Act as they exceeded the total insider borrowing limit of 100 percent of core capital, breaching the limits placed on lending to a single borrower,” the CBK says in its newly published 2021 bank supervision report.

The regulator did not name the lenders.