The Central Bank of Kenya (CBK) has fined 11 commercial banks for breaking various banking rules in 2024, including exceeding lending limits, failing to meet capital requirements, breaching corporate governance standards, and violating investment guidelines.

CBK’s Bank Supervision Annual Report shows that the lenders committed 10 types of regulatory violations, with most linked to lending more than 25 per cent of their core capital to a single borrower—contrary to the single obligor rule.

The breaches were partly attributed to declines in core capital among banks that reported losses.

“Nine banks out of 39 operational institutions breached the single obligor rule, which caps lending to one borrower at 25 per cent of a bank’s core capital. Appropriate remedial actions were taken on the institutions by the Central Bank of Kenya in respect of the violations,” the report stated.

The 2024 figure marks a slight improvement from 2023, when 12 banks were penalised for breaking 11 rules. The regulator said the penalties reflect a stricter enforcement approach aimed at ensuring greater compliance in the banking sector.

Three banks were also penalised for allowing an individual to own more than 25 per cent of the institution, in violation of Section 13 of the Banking Act.

This was an increase from one bank in 2023. CBK said the rule is meant to strengthen corporate governance and reduce risks linked to high ownership concentration.

The report noted that high individual ownership runs counter to CBK’s efforts to promote larger and more stable banks, a push supported by the planned increase of the minimum core capital from Sh1 billion to Sh3 billion by December 2025 to encourage mergers and acquisitions.

In addition, five banks failed to meet the statutory minimum capital requirement, up from four the previous year. One bank was found to have lent its employees, directors and major shareholders more than the owners’ capital, breaching the insider lending cap of 100 per cent of core capital.

Two others exceeded the 20 per cent core capital limit for lending to a single insider borrower.

Core capital, which determines the amount of deposits a bank can accept, is currently set at Sh12.50 for every shilling invested by the bank’s owners. The report further revealed that three banks did not meet the statutory minimum liquidity ratio of 20 per cent.

CBK did not name the offending institutions or disclose the size of penalties, citing the sensitivity of the banking sector. However, under the law, the regulator can impose fines of up to Sh5 million on institutions and up to Sh200,000 on individuals, depending on the breach.

In the year ending June 2024, CBK collected Sh191 million in penalties from commercial banks and forex bureaus.