The Central Bank of Kenya has revealed a request by Kenyan banks to keep certain transactions under wraps and away from the public eye.
According to a report by CBK released recently, banks have asked that access to a borrowing facility maintained by the Central Bank be secret.
“The respondents (banks) made proposals for CBK to consider to further mitigate the impact of Covid-19. In summary, the banks have noted that there is need for CBK, in conjunction with the National Treasury, to come up with other specific measures that particularly cushion institutions," the CBK said in the credit survey report.
"This could be in the form of encouraging the use of a discount window at a minimal rate and without the stigma that is associated with the use of a discount window,” the report added.
A discount window is a procedure that allows banks to borrow from CBK. The financial institutions are wary that customers and investors are likely to lose trust in them if they find out that banks have been borrowing from CBK.
The Central Bank is a lender of last resort which banks turn to after exhausting all other avenues including borrowing from each other.
The report paints a gloomy picture of Kenya’s economy and banking industry which was adversely affected by the Covid-19 pandemic.
The stigma associated with borrowing from CBK comes from past instances where desperate banks have collapsed after treading the slippery slope of asking the regulator for money.
CBK Governor Patrick Njoroge shut down Dubai Bank, Imperial Bank and Chase Bank which were facing liquidity challenges during his first year of office.
Since then, no banks have collapsed as a result of liquidity challenges.
To discourage borrowing from CBK, Njoroge instituted stringent conditions for banks to access the funds.
Banks which borrow from the regulator are required to file daily and weekly reports and are also put under targeted inspection.
The report has also shed light on the liquidity imbalance in the banking industry where a few banks control more than 80 per cent of the available money in the industry.
At the start of the pandemic, CBK released Ksh35 billion to banks to help keep them afloat after being faced with a shortage of deposits and loan repayments.
