Third bank collapse puts former CBK boss reign on the spotlight

The well-read economist is the poster boy for financial inclusion, often earning red carpet treatment in global financial circles.

By BRIAN NGUGI, SUNDAY, APRIL 10, 2016

 

Then Central Bank of Kenya Governor Njuguna Ndung'u (right) with Chase Bank Group Managing Director Duncan Kabui at the opening of a branch in Nakuru. FILE PHOTO |  NATION MEDIA GROUP

In Summary

• Higher learning institutions of repute like Harvard, Oxford and Yale universities have been known to base their studies on his reign.

• But questions resurfaced last week on whether the former governor may have inadvertently allowed rogue bankers room for mischief by being too soft.

• Governor Patrick Njoroge has publicly stated he plans to focus his mandate on enforcement of compliance guidelines by the country’s lender

The regulatory style of former Central Bank of Kenya Governor Njuguna Ndung’u has yet again come under the spotlight following the collapse of Chase Bank, the third Kenyan lender to be placed under receivership in just under nine months.

The well-read economist is the poster boy for financial inclusion, often earning red carpet treatment in global financial circles.

During his eight year reign, he earned his place of pride among scholars and proponents of financial inclusion through his bold regulatory actions which roped some of Kenya’s most poor and previously unbanked into the financial system, leapfrogging Kenya to the top of the financial inclusion world.

Higher learning institutions of repute like Harvard, Oxford and Yale universities have been known to base their studies on his reign and develop model regulatory regimes which promote inclusion.

LAX FINANICAL REGIME

But questions resurfaced last week on whether the former governor may have inadvertently allowed rogue bankers room for mischief by being too soft on regulation in the guise of avoiding to stifle the banking sector.

He has publicly spoken against what he terms “over-regulation” which he has argued “can stifle” the banking sector.

At a press conference with journalists last week, National Treasury officials were at pains to address lingering questions over how the regulators missed out on the troubles faced by the three fallen lenders over a period of many years.

“Loopholes in the sector are continuing to be sealed but there is continuous work going on to strengthen oversight of the banking sector,” said National Treasury Secretary Henry Rotich highlighting the perceived past failures of regulators.

“We want a system that is sound,” said Mr Rotich who has in the past admitted that the regulator has, in instances such as with the three fallen lenders Imperial Bank, Dubai Bank and now Chase Bank, been caught flatfooted in detecting and curbing financial difficulty early on.

ENFORCE COMPLIANCE

CBK Governor Patrick Njoroge has since taking office last year publicly stated he plans to focus his mandate on enforcement of compliance guidelines by the country’s lenders.

Dr Njoroge has also insisted that the regulator had all along been gifted with “good laws” and enforcement is all that is required.

“We have good laws in the banking sector and 2016 is a transition period. We want to ensure banks conform to basic prudential standards,” the governor told journalists last week as he defended his decision to place the three lenders in receivership. This has led to the discomfort of several lenders.

In the past, players in the sector have made suggestions that while Prof Ndung’u can be credited with allowing rapid expansion of banking beyond the confines of banking halls to the streets, he may have been too soft on regulation.