The Central Bank of Kenya (CBK) has announced plans to increase the capital requirements for commercial
banks in response to emerging risks related to information communication technology (ICT) and climate
change.
Despite having a robust financial sector, some Kenyan banks have faced pressure on their capital
adequacy ratios in recent years. The proposed capital increase aims to enhance financial stability and ensure
the soundness of the banking system.
Central Bank Governor Kamau Thugge emphasized the need for stronger banks, acknowledging the rising
risks posed by climate change and cybersecurity. Notably, non-performing loans in the banking sector
increased to 15.5% of total loans as of February this year, up from 14.8% at the end of last year.
The central bank aims to address these challenges by adjusting capital requirements. The proposal to raise capital will be published within the next month, allowing for public discussion and input in accordance with legal requirements.
Currently, Kenya mandates a minimum capital of KES 1.0 billion for those wishing to start a commercial bank. Existing banks are required to maintain 10.5% core capital to total risk- weighted assets and 14.5% total capital to risk-weighted assets.
In summary, the Central Bank of Kenya’s decision to raise capital requirements reflects its commitment to
financial stability and proactive risk management in the face of evolving challenges.
Stronger capital buffers will contribute to a more resilient banking sector, better equipped to navigate the changing landscape of the financial industry. Additionally, higher capital requirements may result into more mergers and acquisitions in
the banking industry
