A recent proposal from Kenya’s parliament finance committee suggests extending the timeframe for commercial banks to meet increased capital requirements to eight years. Initially, Kenya’s Central Bank proposed a tenfold rise in minimum capital for banks with a three-year deadline by June 2024.
The committee argued that the suggested timeline of three years in the Business (Amendment) Bill of 2024 to raise the minimum capital requirement from KES1 billion ($7.7 million) to KES10 billion ($77.8 million) might strain smaller lenders.
According to the committee, stretching the compliance period to eight years would offer a more feasible and realistic window for banks to secure the necessary capital. This extension would enable them to plan and implement strategies to ensure lasting compliance without disrupting their operations or the broader financial sector.
In June, the Central Bank of Kenya highlighted that the new capital requirements aim to enhance resilience against potential financial risks like increased cyber fraud threats and economic uncertainties.
However, meeting these requirements could pose challenges for more than half of the 39 licensed commercial banks. Some of these smaller and mid-size banks might explore options like mergers or raising capital from the stock markets.
The Central Bank of Kenya mandates a minimum core capital-to-risk-weighted assets ratio of 10.5%, a total capital-to-risk-weighted assets ratio of 14.5%, and a core capital-to-deposits ratio of 8%. As of June 2024, the regulator reported that 12 commercial banks had violated various capital requirements.
The affected banks include state-owned Consolidated Bank, UBA Kenya, Housing Finance, Spire Bank, and Development Bank of Kenya.
The current KES 1 billion requirement has been in effect since 2012. This aligns with capital adequacy stipulations in South Africa, Nigeria, and Egypt, the three largest banking industries in Africa. The parliamentary proposal marks the second effort in a decade to revise the capital threshold for lenders. A previous attempt in 2015 to raise the requirement to $38.9 million (KES5 billion) was declined by legislators.