Nairobi — The Central Bank of Kenya has defended the banking sector against an International Monetary Fund report which raised issues about the sector's stability.

Maintaining that there are no weak banks in Kenya, CBK governor Njuguna Ndung'u said the sector is stable with all banks meeting the statutory minimum capital adequacy requirements.

The banks are also holding capital that is aligned to the risk and volume of their business.

"CBK would wish to clarify that there are no weak banks in Kenya. There are strong banks and stronger banks," Prof Ndung'u said in a statement emailed to newsrooms on Saturday.

On the IMF stress tests on capital adequacy, carried out with CBK in March this year, the governor said this is a proactive tool used by regulators and banks to pinpoint vulnerabilities and take appropriate remedial action.

"The IMF carries out stress tests not just in Kenya but in other countries where it conducts missions," he added.

This was in reference to the tests that were based on the financial position in December 2008.

Various scenarios were assumed in the tests including the possible effect of an increase in non-performing loans and a decrease in rates on government securities, which banks invest in.

According to the governor, the same tests have since been periodically repeated using updated data.

But all the 45 banking institutions in the country have demonstrated their resilience in the event of periodic "stress" events such as an economic downturn that would precipitate an increase in non-performing loans.

Supervisory tool

He said CBK will continue with the use of stress tests as a proactive supervisory tool based on the assessment of the impact of various scenarios on the capital adequacy, liquidity, asset quality and earnings of the banking sector.

"The Central Bank of Kenya will continue to sharpen its supervisory tools to ensure that the banking sector remains a safe haven for the savings of Kenyans. This is pursuant to its core mandate of fostering banking system stability," said Prof Ndung'u.