Banking and Financial Institutions Regulation
This domain tests prudential regulation: licensing, capital, liquidity, governance and supervisory intervention. Scenarios often confuse CBK powers with CMA or deposit-insurance protection.
Prudential core
- CBK licenses and supervises banks, mortgage finance companies and microfinance banks under the Banking Act (Cap 488).
- Minimum core capital for commercial banks is KES 1 billion; capital adequacy is core 10.5% and total 14.5% including buffers; minimum liquidity ratio is 20%.
- CBK monitors large exposures, asset classification, governance, risk management and IFRS reporting. It can restrict dividends, require remedial plans, impose prompt corrective action and appoint a statutory manager.
- The Kenya Deposit Insurance Corporation provides limited deposit insurance; it does not cover investments.
Entry and structure
Material shareholding changes and appointments require CBK approval. CBK also oversees payment systems and digital credit providers, but not securities dealing.
Worked example
A bank's liquidity ratio falls to 17%. CBK, not CMA, responds: it may require a liquidity restoration plan, restrict new lending or dividends, and intensify supervision. If core capital falls below 10.5%, CBK can require recapitalisation and use prompt corrective powers. Deposit insurance does not cure the breach; it protects eligible depositors only if the bank fails.
Traps
Using the Basel 8% minimum instead of Kenya's 14.5% total; thinking CBK guarantees all deposits; confusing microfinance banks with SACCOs; assuming KDIC covers treasury bonds or unit trusts.