The Banking Sector Regulatory Framework in Kenya: Its Adequacy in Reducing Bank Failures

Abstract

This study set out to achieve the following two objectives: To identify the most dominant factors causing bank failures in Kenya. To assess the adequacy of the banking sector regulatory framework in reducing probability of bank failures in Kenya. Secondary data obtained from various Central Bank of Kenya publications, and the Banking Act Chapter 488 of Kenya laws, was used in the study. Data analysis was done using the SPSS statistical package. Cross tabulation of cause of institutions failures and the number of institutions in which they occurred was done. Frequency distribution tables were generated from the data collected and a summary of the causes tabulated. A review of the legal provisions in place over the period was then done to assess the adequacy of the various sections of the law in cubing the various causes of failures. The results of the study indicated that the Kenyan regulatory framework was fairly comprehensive in coverage and adequate in content to reduce the probability of failure. The framework hinged on very clear and Independent Acts i.e. the CBK Act and the Banking Act. It was also apparent from the analysis that some failures precipitated due to the delay of the supervisor/regulator in promptly and effectively implementing the provisions of the law. Some provisions of the Act, which would be invoked to forestal problems, were not and have not been applied at all. As Tanner 1990 puts it "if action is not Implemented in a timely and efficient manner. the crisis may get out of hand".