The effectiveness of risk based supervision as adopted by the Central Bank of Kenya
Abstract
This study was carried out to achieve two objectives namely, to establish the effectiveness
of Risk Based Supervision as adopted by the Central Bank of Kenya and challenges
experienced during the implementation of this supervisory methodology.
The primary data on the effectiveness of risk-based supervision was obtained from Bank
Supervisors at the Central Bank of Kenya. The data was analyzed using Ms Excel statistical
package and SPSS to obtain perspectives of cost elements incurred during the
implementation, the benefits and challenges experienced with the adoption of the new
methodology. The results realized from the study showed that risk based supervision led to
reduction in number of days in inspecting a commercial bank, the number of staff per
inspection team were reduced from an average of six supervisors to three, increase in
training costs as supervisors are continuously trained and attached in other regulatory
institutions abroad and educating risk managers in commercial banks.
Hence the overall conclusion was that there is significant cost savings to Kenya
government, as it has not intervened to resuscitate problematic banks in the recent past
since Central Bank adopted Risk Based Supervision. Though it should be noted that a
collapse of commercial banks cannot be prevented by strong regulation and supervision
alone, other economic factors may trigger insolvency among the commercial banks.
The study also identified other grey areas that need research particularly on financial
institutions engaged in activities regulated by more than one financial regulator, for
instance a bank engaged in stock brokerage, insurance, real estate and asset financing.
Challenges relating to information asymmetry faced by regulators continue to be an
inherent impediment to achieving a sound and stable financial sector.
Citation
MBA ThesisSponsorhip
University of NairobiPublisher
School of Business, University of Nairobi
Description
The effectiveness of risk based supervision as adopted by the Central Bank of Kenya