THE EAST AFRICAN UNIVERSITY (TEAU)

UNIVERSITY EXAMINATION

SCHOOL OF BUSINESS AND MANAGEMENT STUDIES

DEPARTMENT OF BUSINESS ADMINISTRATION

Course Unit: Fundamentals of Commercial Banks

Course Code: FNB 4107 LEVEL: Diploma

Session: Jan - April, 2020 TIME: 2 Hours

INSTRUCTIONS

1. The paper is made up of FIVE (5) Questions, Question ONE is compulsory plus any

other TWO Questions

2. Credit is given for legibility, clarity of expression and use of relevant illustrations

3. Clearly write your registration Number on each answer sheet used

DO NOT WRITE ANYWHERE ON THIS QUESTION PAPER

Question One (30 Marks)

The Central Bank plays various functions in the Kenyan economy as mandated under the Central Bank

of Kenya Act, Cap 491. The Banking sector in Kenya has witnessed tremendous developments in the

last decade requiring a robust regulatory framework. Following the collapse of Dubai Bank and the

placement of Imperial Bank under receivership in 2015, there has been calls for stringent regulation of

Commercial banks by the Central Bank of Kenya.

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 a) Describe the various functions of the Central Bank of Kenya in the Kenyan

economy (10 Marks).

b) Assess five (5) demerits of self-regulation of the financial sector in Kenya. (10

Marks)

c) Interest rate capping has since been scrapped to failure to address key economic

issues in the country. Critically argue out the effects of interest rates 'capping' law

that was passed by the National Assembly in Kenya in 2016. (10 Marks) 

Question One (20 Marks)

a) Explain the regulatory framework for banks in Kenya (10 Marks). 

b) Enumerate the several ways in which the Central Bank of Kenya controls the supply of

money in the Kenyan economy (10 Marks). 

Question Two (20 Marks)

a) Citing Kenyan examples, assess the role that mobile banking has

played in revolutionizing banking services. (10 Marks) 

b) Critically discuss five (5) key developments in the Kenyan Banking

sector in the last ten years (10 Marks).

Question Three (20 Marks)

The Kenyan financial system is faced with regulatory gaps and overlaps. 

a) Citing Kenyan examples of financial sector institutions and regulatory authorities, examine

the existing regulatory gaps and overlaps. (9 Marks)

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 b) Explain four (4) benefits that accrue to depositors as a result of regulation of the financial

sector in Kenya. (6 Marks) 

Question Four (20 Marks)

a) Assess six (6) functions of commercial banks in a developing economy. (12

Marks)

b) Explain the term “Sharia' compliant banking” and the concept of “Riba”. (2

Marks)

c) Explain according to your understanding four differences between interest

and Riba. (8 marks)

Question Five (20 Marks)

The COVID-19 pandemic could be the most serious challenge to banking industry in Kenya ever

witnessed in the recent past. As the economic fallout spreads, retail banks find themselves

juggling some big priorities that require concrete steps to reposition now while also recalibrating

for the future.

a) Discuss five measures taken by Central bank of Kenya to cushion banks from the adverse

effects of Covid-19 pandemic. (10 marks)

b) Highlight on five adverse effects to banks as a result of the pandemic. (10 marks)

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