Nairobi — Former Central Bank of Kenya (CBK) Governor Eric Kotut has outlined how sweeping regulatory reforms helped restore stability to Kenya's financial sector following the 1988 banking crisis, which exposed weaknesses among several financial institutions.

Kotut, who served as CBK Governor between 1988 and 1993, said the crisis was largely driven by non-bank financial institutions that had been licensed with inadequate capital, weak management and poor governance, leaving many on the brink of insolvency.

To address the crisis, the CBK intensified inspections to identify distressed institutions before recommending the creation of Consolidated Bank of Kenya to absorb the assets and liabilities of struggling lenders.

"The first thing was to intensify inspections in order to identify more specifically the institutions that were weak. We recommended, and government accepted, that we form an institution that provides an umbrella for these weak institutions," Kotut, who was featured on CBK Governors' series, said.

He said the reforms also included the enactment of a new Banking Act in 1989, which strengthened the Central Bank's supervisory powers, set clearer reporting requirements for lenders and established the Deposit Protection Fund Board to safeguard depositors and support troubled financial institutions.