Kenya’s Finance Minister, Njuguna Ndung’u, has announced a significant increase in the minimum capital requirements for commercial banks, as decreed by the Central Bank of Kenya (CBK). The new directive will raise the capital threshold by ten times the current amount, setting it at $77.8 million (KES 10 billion). This announcement was made during the annual budget speech in the Kenyan parliament on Thursday.
The CBK’s decision to enhance the capital base is aimed at fortifying the banking sector’s resilience against a variety of financial risks, including the growing threat of cyber fraud and the impact of economic shocks. However, this substantial increase poses a considerable challenge for more than half of the 39 licensed commercial banks in Kenya, particularly smaller and mid-sized institutions. These banks may now have to explore strategies such as mergers or sourcing additional capital through the stock market to meet the new requirements.
Minister Ndung’u outlined the CBK’s plan to gradually elevate the minimum core capital for banks from the existing KES 1.0 billion ($7.7 million) to KES 10.0 billion ($77.8 million). He emphasized that the CBK will consult with the market to establish a suitable timeline for achieving this objective. The goal is to bolster the banks’ ability to finance large-scale projects and to maintain a robust capital buffer.
This initiative marks the second attempt in ten years by Kenya to revise the minimum capital standards for its banking sector. A previous attempt in 2015 to increase the capital requirement to $38.9 million (KES 5 billion) was not passed by the Kenyan parliament.
Currently, the CBK mandates that lenders maintain certain capital ratios: a minimum of 10.5% for the core capital to risk-weighted assets ratio, 14.5% for the total capital to risk-weighted assets ratio, and 8% for the core capital to deposits ratio. At present, Consolidated Bank, which is state-owned, is the only bank falling short of these standards.
The KES 1 billion capital requirement has been in place since 2012 and is relatively modest compared to the requirements in other major African banking markets such as South Africa ($90 million), Nigeria ($337.1 million), and Egypt ($104.7 million).
In the East African region, Uganda has already raised its capital requirement to $40 million (UGX 150 billion), leading to the downgrade of several banks, including Nigeria’s GTBank, Kenya’s ABC Capital Bank, and Opportunity Bank. Meanwhile, Tanzania, which last updated its core capital requirements in 2013, has been contemplating an increase as well.
