Via a legal alert from Oraro & Company Advocates: The Finance Act, 2018 which was assented to on September 21, 2018, amended the Central Bank of Kenya (CBK) Act, 1966 to regulate Mortgage Finance Businesses (the business). The amendments include having new definitions and the introduction of new powers to the CBK. These amendments came into effect on 1st October, 2018.
A Mortgage Refinance Business is defined as the business of providing long-term financing to primary mortgage lenders for housing finance and any other activity that the bank may prescribe from time to time;
Mortgage Refinance Company means a non deposit-taking company established under the Companies Act of 2015 and licensed by the CBK to conduct mortgage refinance business;
Specified Mortgage Refinance Company means a licensed mortgage refinance company licensed under the CBK Act.
Increased CBK powers
With the introduction of new sections, CBK will now have the power to license and supervise the business. This includes:
Determining capital adequacy requirements;
Prescribe minimum liquidity requirements and permissible investments for the business;
Supervise the business by conducting both on and off-site supervision;
Assess the professional capacities of persons managing the business;
Approving the board management of the business;
Approving the appointment of external auditors;
Collecting regular data from the business;
Approving the annual audited accounts of the business before publication and presentation at the AGM;
Revoke or suspend a license;
Receiving reports from the Mortgage Refinance Business.
These are extracts from other documents from Oraro & Company with detailed implications of the passing and presidential assent of the Finance Bill 2018.
The Central Bank of Kenya (CBK) has levied bank fines against five institutions over transactions relating to their handling of payments and movement of funds sent from the scandal-plagued National Youth Service (NYS).
The banks are Diamond Trust which handled Kshs 162 million, and was fined Kshs 56 million, Co-operative Bank which handled 263 million (and was fined 20 million), KCB which handled Kshs 639 million (fined 149.5 million), Equity moves Kshs 886 million (89.5 million fine) and Standard Chartered which handled Kshs 1.63 billion from the NYS, and which was fined Kshs 77.5 million.
The CBK statement read that the bank fines followed investigations into failures at the banks including; not reporting large cash transactions, not doing due diligence on customers, lack of support documents for large transactions and lapses in reporting suspicious financial transactions to the Financial Reporting Centre (FRC).
Notably missing was Family Bank that featured heavily in a prominent series of transactions of funds that originated from procurements at the NYS. It has been previously sanctioned and branch and senior staff are being prosecuted.
All the banks which handled NYS funds had been named earlier and the CBK statement added that this was not the end, with an additional group of banks set to be identified and investigated.
Monday saw the conclusion of the receivership of Chase Bank as SBM Kenya, part of a Mauritius financial group, completed a carve out of assets, staff and branches of Chase Bank that was overseen by the Central Bank of Kenya and the Kenya Deposit Insurance Corporation.
CBK Governor Patrick Njoroge said this was a historic event in Africa, not just in Kenya, as previously when banks were shut down, they stayed closed – but that since Chase closed and was reopened in April 2016, 97% of its depositors had been paid in full, and the remaining (large) depositors could now get structured access to 75% of their deposits through SBM (including 50% of their deposits immediately) over a three-year period during which they will earn interest.
He said this had been accomplished as a private sector-led initiative, supported by KCB, and that the process had been transparent throughout, with a unique EOI (expression of interest), done to maximise value for depositors and stakeholders. He added the remaining 25% of the assets would remain with Chase Bank (in receivership) and that CBK and KDIC would continue working to pursue the full recovery of the assets that were illegally taken from Chase Bank.
Kee Chong Li Kwong Wing, Chairman of SBM Holdings, said that they would work with local staff and management of the bank, first to get it back to $1.5 billion assets it was before the closure and then to double in size in 3 to 5 years. He said the vision was for SBM Bank Kenya to have its own local investors, board and management and eventually be listed on the Nairobi Securities Exchange. He added that the model of managing overseas subsidiaries by remote control had not worked in Mozambique and Zimbabwe and that they would not repeat that in Kenya which had potential to be a key partner with Mauritius.
SBM Kenya now moves from being a Tier III to Tier II bank as SBM will also invest an additional $60 million (Ksh 6 billion) for the bank’s growth, taking its investments in Kenya to $86 million. The bank has taken on and rebranded 50 of 62 previous Chase branches and absorbed 825 staff into SBM Kenya.
Kenya’s Treasury Cabinet Secretary Henry Rotich has signaled an end to interest rates capping, saying the interest rate controls have contributed to a slowdown in credit growth to the private sector and denied small businesses’ access to credit.
In his FY 2018/2019 $30.4 billion budget speech to the National Assembly on June 14, Rotich said the interest capping law had not had the intended effect but instead resulted in banks shying away from lending to riskier borrowers such as ordinary businesses and individuals who used to borrow at rates above the 14% that was set through an amendment of the banking law that was passed a year and a half ago.
Rotich observed that he would ask parliament to repeal section 33 (b) of the Act to enable banks to provide more credit to riskier borrowers. He added that the government was also proposing a credit guarantee scheme for micro, small, and medium enterprises, and new credit institutions through the creation of the Kenya Development Bank and Biashara Kenya Fund and other new laws to help protect consumers of financial products.
The interest rates debate continues next week with a session on Monday, June 18 at the Strathmore Business School that will facilitate debate on the impact of the interest rates ceiling and floor.
Organized by the Kenya Bankers Association (KBA), the Institute of Economic Affairs (IEA) and Fanaka Digital, among other partners, the televised session will feature perspectives from the Treasury Cabinet Secretary, MP’s Jude Njomo – who sponsored the 2016 banking amendment that capped interest rates, and Moses Kuria, who is a member of the Budget and Appropriations Committee.
Advertising: A person without a financial conduct license cannot put out an advertisement for the provision of credit. This also applies to building owners (billboards?), or in newspapers, magazines, radio, television. Also, lender advertisements must be truthful. They cannot be misleading by deception.
Credit Limits – cards/overdrafts: Once a credit limit is approved, a financier can’t reduce the credit limits or decline to replace a lost credit card
Credit Reference: No release of credit reports to unauthorized people
In-Duplum: There is also roundabout way of reintroducing the in-duplum rule. There is a clause that if a loan goes into default, the interest, fees, and other charges to be repaid cannot exceed the balance of the loan on the day it went into default.
Insurance: Loans cannot require a borrower to get insurance from a specific company.
Guarantors: The new laws protect guarantors and requires that they be made aware of all clauses in loan contract before they give guarantees, and with no variation to guarantor terms allowed. This is probably inspired by one guarantor and default dispute involving a cousin of the President that has seen over a dozen cases litigated in several courts over 25 years.
Pre-Receivership Management: The Central Bank of Kenya (CBK) can appoint a person to assist an institution to implement its directives when the CBK believes a bank or its officers are not in compliance with the act. The new law provides tools to assist troubled banks without shutting them down, and CBK can also order some shareholders to wind down their interest in institutions within a specific time.
Spam messages? Bank shall not communicate marketing messages to customers unless the customer loan agreement authorizes it.
Statements: Requires all borrowers to be given term sheets before signing for loans, and a copy of the loans contract afterwards. They are also entitled to a free statement every six months and other copies within ten days of a request.
Variations:loan agreements shall not have clauses to vary interest during the loan, or be based on a different rate other than the reference rate of the lender.
Wide Regulation: The new laws will apply to all providers of more than fifty loans and issuer of loans have six months to obtain the new licenses. What of loan apps?
Whether this new law which cracks down on unsavoury banking and consumer finance and behaviors will ease out the 2016 interest rate capping law while assuring parliamentarians who championed the setting of maximum interest rates that bank behaviour will be better-regulated remains to be seen. Also if the clauses will help borrowers who have shifted to other more expensive lending platforms regardless of the consumer finance terms and interest rates charged there.
But the bill also creates a host of new financial regulators including; (i) a Financial Markets Conduct Authority (ii) Financial Services Tribunal (iii) Conduct Compensation Fund Board (iv) Financial Sector Ombudsman (v) an Ombudsman Board who may trip over other existing financial regulators.The bill is in the public participation stage and interested persons can send in feedback on its clauses to ps_at_treasury.go.ke before June 5.