Banks have opposed a plan by the Central Bank of Kenya to introduce higher penalties for rogue lenders.

In draft regulations published last week, CBK has proposed to increase the maximum penalty on banks to Ksh20 million ($200,000), from Ksh5 million ($50,000). The regulator has a free hand to decide how much an offender will be charged dependent on the size of the offence.

“The assessment of the monetary penalty may be carried out on a case-by-case basis and different amounts may be imposed for different violations or against different institutions, credit reference bureaus or any other person. Provided that any differential treatment of institutions, credit reference bureau or any other person shall be justified by the Central Bank,” the draft states.

Bankers who spoke to The EastAfrican raised concerns about the arbitrary powers given to the regulator, saying they are open to abuse and discriminatory application.

“Yes, there is a need to increase the penalties. But why should a big bank be discriminated against when it commits the same violation as a smaller bank yet they are both under the same regulatory regime,” said one of the bankers.

He also pointed out the need for certainty when approaching a disciplinary committee otherwise it would open doors for bribery and witch hunting.

None of the offences cited in the regulations has been allocated a specific penalty leaving it all to the discretion of the regulator.

Banks have until the end of July to submit their feedback on the regulations to CBK.

One of the bankers said it would have been better to peg the penalty on a proportion of the amount involved in the violation, where a bank was seeking financial gain.

CBK has been under pressure to increase the penalties on rogue banks after it emerged that lenders who took in dirty cash from the National Youth Service corruption scandal were fined Ksh1 million ($10,000) each. More than Ksh800 million ($8 million) was transacted through the banks, dwarfing the fine.

In 2011, some banks were fined Ksh1 million ($10,000) for manipulating the shilling, a move that earned them millions in income.

Individuals found in breach of the rules will pay a fine of Ksh1 million ($10,000), up from Ksh200,000 ($2,000). Non-compliant banks will also pay an aggravated daily penalty of Ksh100,000 ($1,000) up from Ksh20,000 ($200) until full compliance.

A bank can also be charged the maximum penalty for several separate offences, which will be added to the final dues to be collected, indicating that the amount could be higher than the Ksh20 million ($200,000).

The Central Bank is also seeking powers to withdraw the penalty from deposits it holds on behalf of the offender.