A brand new proposal by Kenya’s parliament finance committee might prolong the deadline for business banks to satisfy new capital necessities to eight years. In June 2024, Kenya’s Central Financial institution proposed a tenfold hike in minimal capital for banks with a three-year deadline.
The committee stated elevating the minimal capital requirement from KES1 billion ($7.7 million) to KES10 billion ($77.8 million) inside three years, as proposed within the Enterprise (Modification) Invoice, 2024 would place smaller lenders beneath strain.
“Whereas it’s evident that an upward adjustment is important to align with the present financial and monetary atmosphere, the proposed timeline of three years within the invoice for banks to satisfy the revised minimal core capital necessities is taken into account too brief,” the committee stated.
“Extending this compliance interval to eight years would offer a extra sensible and manageable timeframe for banks to boost the required capital, permitting them to strategise and implement measures that guarantee sustainable compliance with out destabilising their operations or the broader monetary sector.”
In June, the Central Financial institution of Kenya (CBK) stated the brand new capital necessities will enhance resilience to potential monetary dangers, comparable to elevated cyber fraud threats and financial shocks.
Nevertheless, it might show difficult for over half of the 39 licensed business banks. For these small and mid-size banks, mergers or elevating capital from the inventory markets are choices they’ll think about.
The CBK requires a minimal core capital-to-risk-weighted belongings ratio of 10.5%, a complete capital-to-risk-weighted belongings ratio of 14.5%, and a core capital-to-deposits ratio of 8%. In June 2024, the regulator claimed that 12 business banks breached varied capital necessities.
The banks included state-owned Consolidated Financial institution, UBA Kenya, Housing Finance, Spire Financial institution, and Improvement Financial institution of Kenya.
The KES 1 billion present requirement has been in drive since 2012. This follows the capital adequacy requirement in South Africa ($90 million), Nigeria ($337.1 million), and Egypt ($104.7 million), the three largest banking industries in Africa.The proposal in Parliament is the second try in a decade to overview the capital threshold for lenders. A 2015 proposal to boost the requirement to $38.9 million (KES5 billion) was rejected by lawmakers.