CCP Intermediate Level
Credit Governance and Compliance flashcards
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Which regulator oversees each type of Kenyan lender?
CBK: commercial banks and digital credit providers, and microfinance banks under the Microfinance Act. SASRA: deposit-taking SACCOs. CMA: listed lenders' securities and governance disclosure. Always identify the regulator before applying a sector's rules.
What is the difference between a policy, a procedure and a rule?
Policy: a high-level statement of intent and boundaries, e.g. 'the institution will not lend to sectors X or Y'. Procedure: the step-by-step process for implementing the policy, e.g. how a loan application is processed. Rule: a specific, binding requirement with no discretion, e.g. a maximum loan-to-value ratio.
What minimum capital ratios does CBK require of a bank?
Core capital / risk-weighted assets: at least 10.5%. Total capital / risk-weighted assets: at least 14.5%. Example: core KES 800m, total KES 1,050m, RWA KES 6,500m gives 12.3% and 16.2%, compliant on both.
What are the five risk classifications of a bank's assets?
Normal: fully performing, no signs of weakness. Watch: early signs of potential weakness, needing closer monitoring. Substandard: well-defined weaknesses jeopardising repayment. Doubtful: full recovery is questionable. Loss: considered uncollectible. The minimum provision rises with each class.
Why are member savings a distinctive form of SACCO loan security?
A SACCO can hold a defaulting member's own savings and deposits, already on its books, as security. That gives immediate, low-cost access to part of the balance with no external valuation, registration or separate recovery process, something a conventional bank does not have.
What are the three principles of Islamic lending?
1. No interest (riba). 2. No financing of prohibited (haram) activities. 3. Risk and profit-sharing between financier and customer, rather than a guaranteed fixed return.
How is PAR30 calculated and read?
PAR30 = outstanding balance on loans with a payment more than 30 days overdue / total portfolio outstanding. Example: KES 40m / KES 500m = 8%. Against an industry PAR30 of 5%, 8% signals below-average portfolio quality relative to peers.
What did each of Basel I, Basel II and Basel III add?
Basel I: the risk-weighted capital adequacy concept, focused mainly on credit risk. Basel II: three pillars (minimum capital, supervisory review, market discipline) and more risk-sensitive approaches. Basel III: stronger capital quality and quantity, liquidity requirements and a leverage ratio backstop.
Who owns goods during a hire purchase agreement, and how does that differ from a secured loan?
Hire purchase: the financier keeps legal ownership throughout the hire period; it passes to the customer only once all instalments, plus any final option-to-purchase payment, are complete. Secured loan: the customer owns the asset from the outset and the lender holds a registered security interest, e.g. a charge.
What are the four principles of corporate governance?
Accountability, fairness, transparency and responsibility. For a lender, transparency matters especially to depositors, who cannot assess the institution's soundness themselves.
What are the four objectives of regulating lending institutions?
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How do rules-based and principles-based regulation compare?
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What is risk-based supervision?
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What is a credit policy?
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What are the operating principles of a credit policy?
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How does a typical delegated approval-authority matrix work?
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What are the three types of credit policy?
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What are the components of a credit manual?
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What is banking business under the Banking Act?
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What is the difference between insider lending and reckless lending?
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What administrative measures can CBK take for non-compliance, from least to most severe?
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What does Charterhouse Bank Limited v Central Bank of Kenya [2007] KECA 100 (KLR) decide?
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How should collateral be valued when managing non-performing assets?
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Who regulates deposit-taking SACCOs, and under what law?
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How does SASRA classify SACCO loans, and what minimum provision does each class carry?
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A SACCO has loans of KES 200,000 current, KES 150,000 at 20 days, KES 100,000 at 90 days and KES 50,000 at 400 days in arrears. What is its required provision?
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What do SACCO rules require on interest, fees and disclosure?
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Which cooperative principle most sets SACCO governance apart from a bank's?
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How does a microfinance bank differ from a credit-only microfinance institution?
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Why is microfinance lending more streamlined, and what techniques does it use?
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Does a microfinance bank's lower minimum capital mean lighter regulation of its lending?
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What are murabaha, ijara and musharaka?
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What does a Sharia advisory board do?
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Are Islamic banks a separately licensed category in Kenya?
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How does the credit loss ratio differ from the NPL to gross loans ratio?
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What does the Collections Effectiveness Index measure?
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What do risk migration rates show?
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What is Value at Risk?
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What are Basel II's three pillars?
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Why does an unsecured corporate loan use more capital than a treasury bill of the same value?
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What is the difference between regulatory and economic capital?
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What are the four principles of responsible lending?
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What must a hire purchase agreement set out?
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What does Karsales (Harrow) Ltd v Wallis [1956] teach about hire purchase?
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Why is a lender's agency problem described as amplified?
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What are the roles of the Chairman and the CEO, and why separate them?
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What rule comes from Aberdeen Railway Co v Blaikie Brothers (1854)?
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What governance code applies to state-owned lending institutions in Kenya?
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How do consequentialism, deontology and virtue ethics judge an action?
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Why is regulation described as a floor, not a ceiling, on lending conduct?
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