Banks Granted 8-Year Period to Meet Sh10 Billion Capital Target

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Kenya’s Parliamentary Committee on Finance and National Planning has recommended an eight-year extension for banks to meet new minimum core capital requirements, easing the timeline initially proposed in the Business Laws (Amendment) Bill, 2024.

The adjustment follows lobbying from the Kenya Bankers Association, which highlighted the potential strain on smaller lenders under the original timeline.

The bill seeks to increase the minimum core capital for banks from the current KES 1 billion to KES 10 billion. The initial proposal had set staggered benchmarks of KES 3 billion by the end of 2025, KES 6 billion by 2026, and KES 10 billion by December 2027.

The new timeline grants banks until 2032 to fully comply, giving more flexibility to the 24 out of 38 banks currently operating below the KES 10 billion threshold, including 12 banks with less than KES 3 billion in core capital.

The Treasury argues that higher core capital requirements are essential for bolstering financial stability in Kenya’s banking sector, which holds over KES 5.68 trillion in deposits.

The proposal also aligns with similar moves in neighboring Uganda and Tanzania. Kenya’s banking assets have seen significant growth, rising from KES 2.3 trillion in 2012 to KES 7.568 trillion as of September 2024.

Read: Kenyan Banks Serve 39 Million Customers, New Survey Finds

Historically, proposals to increase core capital have faced resistance. Earlier plans to raise the threshold to KES 5 billion aimed to consolidate the industry by encouraging mergers and acquisitions, potentially creating stronger banks capable of financing larger projects.

However, critics warn that reduced competition could lead to monopolistic practices, disadvantaging borrowers and depositors.

The latest deliberations come as reports from the Central Bank of Kenya indicate that failure to ease the compliance timeline could have led to the closure of 24 banks, affecting over 7,000 employees. Core capital serves as a financial buffer, ensuring banks remain operational during crises like mass withdrawals or substantial losses.

Currently, Kenyan banks are required to maintain a minimum of KES 1 billion in core capital, a figure that has remained unchanged despite the sector’s growth.