Kenya’s banking sector is poised for changes as more than half of the commercial banks in the country will need to seek new funding or merge with rivals. This follows a proposal to increase the minimum capital requirement 10 times to Kes 10 billion.
The plan, announced by National Treasury Cabinet Secretary Njunguna Nd’ungu, will be implemented through a progressive increase from the current threshold of KES 1.0 billion.
CS Nd’ungu outlined that this move aims to strengthen the resilience and capacity of banks to finance large-scale projects. Additionally, it is designed to create sufficient capital buffers to absorb and withstand shocks posed by emerging risks associated with the adoption of technology and innovations. He made these remarks during the presentation of the 2024/25 financial year budget proposals at the national assembly yesterday.
Core capital, which banks are required to maintain, serves as a safeguard to protect customers against unexpected losses. As per the Central Bank of Kenya, only 15 out of the 38 licensed commercial banks had core capital exceeding KES 10 billion by December 2022. This implies that more than half of the banks, particularly those categorized as tier 2 and tier 3, did not meet the proposed threshold.
At the end of 2022, Spire Bank Ltd, Consolidated Bank, and Access Bank Kenya were among those with the lowest levels of core capital. Spire Bank’s assets were subsequently acquired by Equity Bank in 2023, following the announcement of the Assets and Liabilities Purchase Agreement in September 2022.
The core capital requirements for banks were last revised following the 2007/09 financial crisis, increasing from Kes 250 million to Kes 1 billion. According to Cytonn Research, Kenya remains overbanked with a relatively high number of banks compared to major African economies.
To address this, the government needs to support consolidation initiatives, aiming to reduce the number of banks from the current 38 to about 30. From a regulatory perspective, an increased capital base is crucial for ensuring financial sector stability.
