Banks swift to adopt global rules but poor in execution

Thursday January 18 2018

Accounting

African report raises concerns on the capacity of local auditors and regulators. PHOTO | FILE 

By BUSINESS DAILY
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Kenya scores highly in adoption and compliance with international regulations and standards in the financial sector but questions remain about the capacity for implementation by auditors and regulators, a new report on African financial markets says.

The survey found that there is a gap between adoption of global standards such as the Basel III for banks and implementation, with Kenya only ranked seventh in market transparency, tax and regulatory environment among the 17 African economies.

The first African financial markets index was done by Barclays and global think-tank Official Monetary and Financial Institutions Forum (OMFIF).

“That statement comes from the survey of individuals and market participants in Kenya.

This is on the back of some of the things that happened in your financial markets that have caused the regulators such as CBK to tighten the regulations and activities of auditors for example,” said George Asante, Barclays Africa head of markets outside of South Africa.

Irregularities

Kenya has seen a number of institutions, including three banks, fall into difficulties due to irregularities in their books despite audits being carried out every year.

In 2015 and 2016, three banks—Dubai Bank, Chase Bank and Imperial bank—collapsed due to either fraud or accounting shortcomings, while a number of listed firms such as Uchumi Supermarkets, Mumias Sugar and Kenya Airways have had corporate governance issues.

Nakumatt, once the largest retail chain in East Africa, is also on the brink of collapse.

The index assesses a total of six parameters — the others being market depth, access to foreign exchange, capacity of local investors, macroeconomic opportunity and enforceability of legal agreements.

Overall, Kenya was ranked fifth in the index with a score of 59 per cent, behind South Africa (92 per cent), Mauritius (66 per cent), Botswana (65 per cent) and Namibia (62 per cent).

The country performed best in the ability to enforce contracts in the legal sector, which Barclays and OMFIF say is important in attracting international investors into the country.

Kenya also did well in local investor capacity, with the report noting the country’s domestic institutional investors hold assets worth up to $12.6 billion (Ksh1.3 trillion).

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