Banks concerned about duplication of roles between regulators

Francis Opiyo, owner of Green Park Estate in Athi River, shows a notice of demolition mark from the Water Resource Authority (WRA). [David Njaaga,Standard]

Banks cited the duplication of roles between national and county governments as one of the barriers to businesses when dealing with environmental issues.

A report that details these challenges also notes the duplication of licensing roles between sector regulators.

The challenges expose financial institutions to more risk when it comes to lending or collecting loans from clients who borrow to undertake development projects.

The report, Environmental Risk Exposure in the Kenyan Banking Sector by Kenya Bankers Association in partnership with Financial Sector Deepening (FSD) Kenya notes that while the National Environment Management Authority (Nema) is the lead agency, it shares the same competence with other agencies. as well.

These include the Water Resources Authority (WRA).

The report released on July 7, 2022 says there is often duplication of licensing jurisdictions at national and county level and between sector regulators, creating different standards and conflicts.

“For example, water abstraction is licensed by both Nema and the WRA, effluent discharge is licensed by Nema and the Ministry of Water, and waste management activities are licensed by Nema as well as by Nairobi County,” he said.

The report was supported by the International Union for Conservation of Nature and the Mitsubishi Corporation Fund for Europe and Africa.

This duplication causes confusion when seeking permits for development projects, which can sometimes lead to one regulator revoking a permit issued by the other.

“In each of these cases, it is unclear which entity takes precedence over the other,” the report said.

It says each regulator derives a significant portion of its funding from licensing fees and is therefore unwilling to give up its legal authority to grant approvals.

Stakeholder consultations conducted during the compilation of the report also revealed that there is a general lack of clarity on the mandates of relevant institutions, in particular the role played by the counties and those of the national government.

“The institutional framework could therefore benefit from the harmonization of enabling environmental policies and legislation to avoid conflicting mandates,” he suggests.

The report says that while banks can position themselves in a variety of ways in their quest for growth without finding themselves at a historic tipping point, they cannot maintain the status quo given the opportunities to finance sustainable developments and businesses, the dwindling resources and stricter sustainability regulations. affect customers and their ability to repay their debts.

Non-Performing Portfolios

Additionally, some of the risks of inaction faced by banks include overexposure to non-performing loan portfolios as well as the transfer of liabilities to the bank through foreclosures.

The report adds that banks face reputational and market risks as well as liability for environmental damage.

“Environmental risks must be properly identified and assessed to inform the appropriate risk mitigation and management approach,” the report states.

“Risks that are not systematically assessed may be mistakenly considered irrelevant.”

Addressing delays in obtaining regulatory approvals, the report proposes that Nema invest in adequate staffing and training to ensure regulators and government officials are sufficiently equipped and motivated to deliver timely services and oversight. .

He also proposes to push for the digitization of the process for issuing improvement and closure notices to ensure proper oversight by Nema.