Ecobank Kenya pays the price for flouting forex regulations

Central Bank of Kenya (CBK) has censured Ecobank Kenya Limited for breaching foreign exchange exposure limits, barring the lender from the forex market from today until April 4.

CBK said that the tier-two lender failed to meet the rules that stipulate that a bank must match its foreign currency assets and liabilities and ensure that the difference between the two does not exceed 10 percent of core capital.

Any mismatch to the negative is supposed to be filled through borrowing from other lenders, in order to limit exposure to foreign currencies.

According to the CBK press release on the matter, Ecobank failed to prevent a breach of the limit, arising out of a specific transaction—the details of which the regulator did not provide.

Ecobank’s core capital as of September 2021 stood at Sh6.01 billion, meaning that its limit would be capped at around Sh600 million ($5.22 million).

“In investigating Ecobank’s trading practices and a specific transaction that it had concluded, it is evident that Ecobank did not have sufficiently robust risk controls to prevent breaches on its foreign exchange exposure limits, or the inaccurate reporting of its position,” said the CBK on Monday.

“Ecobank’s acknowledgement of its obligations as an authorised foreign exchange dealer and its commitment to address the underlying issues is noted.”

Following Ecobank’s breach, CBK said that the lender will be required to reverse the amount of additional exposure that arose as a result of the breach, in addition to keeping off the forex market for six business days.

The bank was however allowed to settle all committed transactions that were on its books as of Monday.

Ecobank will also be required to put in place measures to prevent the recurrence of the lapses that led to the breach.

“The remedial plan should also point to specific measures to address the unsafe trading practices that led to the non-compliance and to enforce adherence to orderly conduct as stipulated in CBK’s Guidelines on Foreign Exchange,” said CBK.

The regulator has been keeping a keen eye on the forex market, at a time when the shilling has been under pressure and dollar supply has tightened in the market. The shilling was edging towards the 115 units to the dollar level yesterday, exchanging at 114.81 units to the greenback in the afternoon having opened the week at 114.75 units.

This article originally came from The East African

Photo: NMG