The Central Bank of Kenya (CBK), will increase the minimum capital requirement for commercial banks 10-fold to $77.8 million (KES10 billion), Njuguna Ndung’u, Kenya’s minister of finance announced on Thursday.
The new capital requirements will boost resilience to potential financial risks like increased cyber fraud threats and economic shocks, but it could also prove challenging for over half of the 39 licensed commercial banks.
For these small and mid-sized banks, mergers or raising capital from the stock markets are options they will consider.
“The CBK intends to progressively increase the minimum core capital for banks from the current KES1.0 billion ($7.7 million) to KES10.0 billion ($77.8 million). The CBK will engage the market for an appropriate timetable to achieve this goal.
This is intended to strengthen the resilience and increase the bank’s capacity to finance large-scale projects while creating a sufficient capital buffer,” Ndung’u said during the annual budget speech in parliament.
It’s of vital importance to note that this is the second time in a decade that Kenya is pushing to review the minimum capital threshold for lenders.
In 2015, a similar proposal to raise the key capital requirement to $38.9 million (KES5 billion) was rejected by parliament.
CBK requires lenders to maintain a 10.5% floor for the core capital to risk-weighted assets ratio, 14.5% total capital to risk-weighted assets, and 8% for the core capital to deposits ratio. State-owned Consolidated Bank is the only lender that does not meet the current threshold.
The KES 1 billion current requirement has been in force since 2012. This trails the capital adequacy requirement in South Africa ($90 million), Nigeria ($337.1 million), and Egypt ($104.7 million)–the three biggest banking industries in Africa.
Neighbouring Uganda increased its threshold to $40 million (UGX150 billion), which has since seen some banks downgraded including Nigeria’s GTBank, Kenya’s ABC Capital Bank, and Opportunity Bank. Tanzania last reviewed core capital requirements in 2013 and has been mulling plans to raise.
