CBK fines 11 banks for breach of lending rules
By John Otini, August 13, 2025Central Bank of Kenya (CBK) fined 11 banks more than Sh5 million each last year for risky insider lending practices that characterised the collapse of Imperial Bank.
Banking staff, directors, and associates were the direct beneficiaries of practices such as lending more to the staff and directors than its owner’s capital that dangerously put customer deposits at risk and could trigger potential bank failures.
The 2024 bank supervision report underscores that as at December 31, 2024, 11 commercial banks violated provisions of the Banking Act and CBK prudential guidelines concerning lending limits to insiders. Specifically, nine banks breached the single obligor limit, which caps lending to a single borrower at 25 per cent of the bank’s core capital.
“Eleven commercial banks were in violation of the Banking Act and CBK Prudential Guidelines as at December 31, 2024… Most of the violations were with respect to breach of single obligor limit due to decline in core capital in some banks that reported losses,” the CBK report read in part.
Two banks exceeded the insider borrower limit of 20 per cent of core capital, and one institution surpassed the aggregate insider borrower limit of 100 per cent of core capital. These violations represent significant governance lapses, raising concerns about concentrated credit risk and potential conflicts of interest.
Prohibited investments
Beyond insider lending breaches, some institutions contravened rules on prohibited investments and capital adequacy. Two banks invested over 20 per cent of their core capital in land and buildings, violating the prudential limits.
Multiple banks failed to meet minimum core capital requirements and total capital to risk-weighted assets ratios, signalling vulnerabilities in their financial buffers.
Additionally, failures in liquidity management and ownership concentration rules were noted. For all these breaches, CBK imposed penalties and mandated remedial actions, emphasizing the imperative for robust risk management and governance.
The regulator said the fines levied on these banks are more than punitive measures; they are a strategic regulatory stance designed to curb excessive insider exposure which threatens to dilute risk diversification, increase credit quality deterioration, and erode public confidence in the banking system.
CBK’s updated penalty regime aims to “ensure that the penalty regime in the Banking Act is effective, proportionate and dissuasive,” a critical factor in fostering a culture of compliance and sound governance.
The report highlights this point with the statement, “Two banks were in violation of Section 11(1)(f) of the Banking Act due to breach of the single insider borrower limit of 20 percent of the core capital… Appropriate remedial actions were taken on the institutions concerned by the CBK in respect of the violations.”
Despite these supervisory challenges, the Kenyan banking sector demonstrated notable financial resilience in 2024. The sector’s profit before tax surged by 18.2 per cent to Sh260 billion, buoyed by income growth exceeding expense increases.
Capital adequacy ratios remained robust at 19.6 per cent, comfortably above the regulatory minimum of 14.5 percent, while liquidity ratios averaged 56 per cent, well above the statutory 20 per cent threshold. These strong financial fundamentals provide a cushion that supports the sector’s stability amid tightening regulatory scrutiny.
The strengthened regulatory framework includes a progressive increase in the minimum core capital requirement for commercial banks, set to rise from Sh1 billion to Sh10 billion by 2029.
This measure reflects CBK’s strategic vision to build a resilient, competitive banking sector capable of absorbing shocks and fostering sustainable economic development.
CBK’s strict enforcement on insider lending limits, coupled with the enhancement of capital requirements and governance standards, seeks to buttress Kenya’s banking sector integrity.
Anti-money laundering
The institution’s vigilant supervision extends to anti-money laundering, combating financing of terrorism, and addressing emerging risks such as digital banking innovations. Through these efforts, CBK aims to nurture a banking environment that is disciplined, transparent, and aligned with best practices.
Central Bank’s slapping of the 11 commercial banks with penalties over Sh5 million each for excessive insider lending is a clear demonstration of its resolve to maintain financial stability and promote ethical banking conduct in Kenya.
By imposing rigorous penalties and enforcing corrective measures, CBK fortifies not only the soundness of individual banks but also the overall trust and sustainability of the national financial system a cornerstone for Kenya’s economic progress.