The Central Bank of Kenya has cracked down on risky lending in the banking sector, imposing fines of over Sh5 million each on 11 commercial banks last year. The move aims to curb insider lending practices similar to those that led to the fall of Imperial Bank.
According to the 2024 Bank Supervision Report, bank employees, directors, and their associates were the main beneficiaries of loans that, in some cases, exceeded the owners’ capital. Such practices put customer deposits at risk and could have triggered serious bank failures.
The report shows that as of December 31, 2024, these 11 banks broke the Banking Act and CBK prudential guidelines on lending to insiders. Nine banks exceeded the single obligor limit, which caps loans to a single borrower at 25 per cent of a bank’s core capital.
“Eleven commercial banks violated the Banking Act and CBK Prudential Guidelines as of December 31, 2024… Most of the violations were concerning breach of single obligor limit due to decline in core capital in some banks that reported losses,” the report stated.
Two banks surpassed the insider borrower limit of 20 per cent of core capital, while one bank went over the total insider lending cap of 100 per cent of core capital. These breaches reflect serious governance gaps and raise concerns about concentrated credit risks and conflicts of interest.
The report also flagged banks for violating rules on prohibited investments and capital adequacy. Two banks invested more than 20 per cent of their core capital in land and buildings, while others failed to meet minimum core capital and capital-to-risk-weighted-asset ratios. Weak liquidity management and high ownership concentration were also noted.
CBK said the fines go beyond punishment. They are intended to curb excessive insider exposure, which can harm risk diversification, weaken credit quality, and erode public confidence in banks.
“Two banks violated Section 11(1)(f) of the Banking Act due to breach of the single insider borrower limit of 20 per cent of the core capital… Appropriate remedial actions were taken on the institutions concerned by the CBK in respect of the violations,” the report added.
Despite these challenges, Kenya’s banking sector remained resilient. Profit before tax increased by 18.2 per cent to Sh260 billion, supported by growth in income. Capital adequacy ratios held strong at 19.6 per cent, above the regulatory minimum of 14.5 per cent, and liquidity averaged 56 per cent, well above the required 20 per cent.
Looking ahead, CBK is gradually raising the minimum core capital requirement for commercial banks from Ksh 1 billion to Ksh 10 billion by 2029. This measure aims to strengthen banks’ resilience and foster a competitive and stable financial system.
Through strict enforcement of insider lending limits, higher capital requirements, and improved governance standards, CBK is reinforcing the integrity of Kenya’s banking sector. Its supervision also extends to anti-money laundering, combating terrorism financing, and monitoring emerging risks from digital banking innovations.
The hefty fines on the 11 banks signal CBK’s commitment to ethical banking practices, financial stability, and public confidence in Kenya’s banking system.
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