CENTRAL BANK OF KENYA
Remarks by
PROF. NJUGUNA NDUNG’U
GOVERNOR
CENTRAL BANK OF KENYA
at the
LAUNCH OF THE KENYA COMMERCIAL BANK SUPERVISORY
COLLEGE
Kenya School of Monetary Studies
Wednesday, 3rd October 2012

The IMF East AFRITAC Officials here present;
Distinguished delegates from the EAC Partner States Central Banks
here present;
Dr. Martin Oduor Otieno, Kenya Commercial Bank Group Chief
Executive Officer;
Distinguished Participants;
Ladies and Gentlemen:
The Central Bank of Kenya is delighted to host this inaugural meeting of a
Supervisory College in the East African region. This is a great milestone for the
region’s Central Banks in enhancing the existing mechanisms for information
sharing and collaboration.
At the onset, let me commend the IMF’s East AFRITAC for their unwavering
support towards enhanced stability of the banking sector in the region. Today’s
launch of the pioneering supervisory college has been made possible through the
technical assistance and capacity building by the East AFRITAC. I would like to
thank all those who have contributed to the organisation of this meeting. Let me
also extend a warm welcome to all participants.
Ladies and Gentlemen: The requirement for enhanced information sharing and
collaboration among financial sector supervisors has gained more prominence
recently. This is informed by the continued cross-border expansion of financial
sector players as well as the convergence of their cross-sector operations. As a
result, for us to be able to adequately address all potential risks from the continued
convergence of players and their cross-border expansion, the time to embrace
consolidated supervision within and across our borders is at hand.
As you may be aware the importance of cooperation between home and host
regulators of banking groups dates back three to four decades ago. The Basel
Committee for Banking Supervision developed guidelines in 1975 to guide
cooperation between national authorities in the supervision of banks with crossborder establishments. These guidelines were enhanced with the issuance of the
Basel Core Principles on Effective Supervision in 1997, in particular, Basel Core
Principle 24 on Consolidated Supervision which requires that supervisors should
regulate banking groups on a consolidated basis, and Basel Core Principle 25 on
Home-host Relationships (Cross-border consolidated supervision) which requires
cooperation and information exchange between home supervisors and the host
supervisors.

Ladies and Gentlemen: Following financial crises experienced from 2007, the
importance of information sharing and collaboration between banking group
supervisors, especially through supervisory colleges, was re-emphasised by the
G20 Leaders and Financial Stability Board Forum held in 2008. To actualise the
Forum’s declaration the Basel Committee for Banking Supervision released a paper
on Good Practice Principles on Supervisory Colleges in October 2010. The paper
supplemented the existing guidance on cross-border cooperation and informationsharing. It outlined expectations for both home and host supervisors in relation to
supervisory college objectives, governance, communication and information
sharing as well as potential areas for collaborative work.
Ladies and Gentlemen: Currently, 10 Kenyan banks have established presence
across the Eastern Africa region including two in South Sudan and one in
Mauritius. As at 30th June 2012, the 10 Kenyan banks had 240 branches outside
Kenya, an increase of 34 branches from 204 in December 2011. It is worth noting
that it is not only Kenyan banks that are expanding across the borders but banks in
the other East African countries have also embraced the opportunity. A case in
point is the application by Bank of Kigali to establish a Representative Office in
Kenya. I envisage that more banks will consider cross-border expansion once the
on-going harmonisation of the legal, supervisory and regulatory frameworks
among the EAC Central Banks is completed.
Ladies and Gentlemen: Effectiveness of consolidated supervision and in
particular a supervisory college depends on how it is structured. The structure of a
supervisory college to be adopted depends on the unique characteristics of the
banking group being considered. In this regard, CBK as the home supervisor of
Kenya Commercial Bank (KCB) Group, and with the technical assistance of East
AFRITAC, has designed this supervisory college to reflect the nature and
complexity of operations of KCB. The structure is expected to promote timely
information sharing and closer collaborations amongst the KCB Group
supervisors.
Ladies and Gentlemen: As we hold this supervisory college meeting for KCB, it
is worth noting that KCB has made great progress since its predecessor; the
National Bank of India opened an outlet in Mombasa in 1896. I take note that as at
30th June 2012, KCB had a branch network of 226 branches; 56 of which were
outside Kenya. Further, as at 31st July 2012, KCB’s total assets were valued at
Ksh.295 billion (USD3.5 billion) while its total loans and gross deposits amounted
to Ksh.190 billion (USD2.26 billion) and Ksh.213 billion (USD2.53 billion)
respectively.

Ladies and Gentlemen: Despite the commendable efforts towards full
integration in the East African Community, banks with cross border operations
continue to report operational challenges. The major operational challenge is the
need for a huge capital outlay, which could otherwise be minimised through
centralisation of some operations and decision making. With the advancements in
information technology, centralisation of some operational processes is being
embraced globally based on the resultant cost savings as along as adequate risk
mitigating measures are assured. In this regard, I urge regulators in the Eastern
Africa region to always embrace a developmental mindset as they consider
proposals by market players. As long as adequate risk mitigation measures are
demonstrated, innovations should be facilitated. It is only through this that our
banking sectors will effectively play their roles of resource mobilisation, allocation
and deepen the market. More importantly, innovations will reduce the cost of
banking services and products. Lower costs are critical to tapping the vast
unbanked populace in our region.
Ladies and Gentlemen: The output from this meeting will provide a framework
to enhance effective supervision of the KCB Group. It will also set precedence for
the supervision of other banking groups with cross border operations. I
acknowledge the presence of KCB Management who I am informed will showcase
their strategy and operational plans. It is through a clear understanding of
institutional strategies and plans that supervisors are able to proactively discharge
their supervisory mandates.
Ladies and Gentlemen: I believe that there is a great wealth of supervisory
information and ideas to be shared in this supervisory college. As the East African
Central Banks, there is need to be steadfast in supervision of institutions with cross
border operations to minimise the likelihood of systemic effects in case of failure. I
therefore wish to reiterate the importance of seizing this opportunity to discuss
mechanisms of enhancing regional coordination in supervision as well as crisis
management/mitigation.
With these few remarks Ladies and Gentlemen, it is now my honour and
pleasure to declare this inaugural supervisory college meeting officially opened and
I wish you fruitful deliberations.
Thank You