Banks Face Probe Over Emergency Loans

Commercial banks that borrow from the Central Bank of Kenya (CBK’s) emergency lending window more than twice in a week will be investigated, Business Daily Africa reported. In a circular elaborating on the new market-based operations, CBK said banks using the overnight window will also be charged a high penalty above the Central Bank Rate (CBR) that currently stands at 16.5 per cent. “Those banks utilising the CBK Overnight Window will be charged the CBR plus a high penalty. Banks making use of this facility more than twice in a week will be scrutinised to establish whether prompt corrective action is required,” said the CBK statement. The banking sector regulator has previously accused banks of using funds borrowed through the emergency window to speculate on the shilling or on-lend at exorbitant rates. The overnight loans are meant to help banks to stay within the minimum liquidity ratio requirements set by the regulator. Commercial bank dealers and the Kenya Bankers Association said the circular was sent to them following the Tuesday Monetary Policy Committee (MPC) meeting. The Committee raised the CBR by 5.5 percentage points to 16.5 per cent —the highest increase in a single sitting since the benchmark rate was introduced in June 2006. Read more.