The Central Bank of Kenya (CBK) has proposed that commercial banks raise their share in liquid assets to cover panic withdrawals and cushion against cases of severe financial stress within a 30-day period.
- •The proposal, coming at the dawn of jitters in the industry, will see lenders maintain liquidity above the 20% of deposits threshold to meet withdrawal demand in stress scenarios.
- •The apex bank proposed that banks determine the value of withdrawals from customers in a cash crunch scenario, for a 30-day period and maintain sufficient liquidity to meet the demand.
- •The move comes days after rumours on social media of lenders reducing withdrawal caps, suggesting a cash crunch in the sector and the real economy.
Sector players, including the CBK dismissed the claims, holding that the banking sector is at its strongest. “The Kenyan banking sector is at its strongest in capital, liquidity and other measures. We should be very proud as a country of our strong banking institutions,” John Gachora, Chief Executive Officer of NCBA Group and Kenya bankers Association Chairman wrote on X.
“This standard aims to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high quality liquid assets to survive a 30-calendar day stress scenario,” CBK noted in the new draft guidelines.
According to data from the CBK, the banking industry exceeded the 20% statutory liquidity requirement, averaging 51% in 2023.
“The banking sector in Kenya remains stable and resilient, and is adequately capitalized,” CBK noted in a statement on 13th November.
Under the new rules, commercial banks are expected to manage liquidity risks in individual currencies they operate in as a buffer against potential forex shocks.
“While the LCR is expected to be met and reported in a single currency, banks are expected to be able to meet their liquidity needs in each currency and maintain High Quality Liquid Assets consistent with the distribution of their liquidity needs by currency” CBK noted.
To curb overreliance on short term funding, the CBK seeks to adopt a net stable funding ratio to ensure at least 100% of their long-term obligations are backed by reliable funding sources.
