The Central Bank of Kenya (CBK) and the Treasury have differing views on the capital requirements for commercial banks. The CBK has directed banks to stick to the initial plan of raising minimum core capital to at least Sh5 billion by the end of next month, Sh6 billion next year, Sh8 billion in 2028, and Sh10 billion in 2029. This plan was set to stagger the capital increase over five years, sparing 14 banks from raising at least Sh33 billion by the end of December.
The Treasury, however, has set a one-off hard deadline of December 2032, eliminating the staggered build-up. Treasury Cabinet Secretary John Mbadi proposed amendments to the Banking Act to allow commercial banks to raise the minimum core capital to Sh10 billion by December 31, 2032, without annual milestones. The CBK has ordered banks with core capital of less than Sh5 billion to offer written explanations on how they plan to meet the requirement before year-end.
As of the end of June, 14 banks, including Middle East Bank, M-Oriental Bank, and Bank of Africa, had core capital less than Sh5 billion. Seven banks, including Credit Bank, UBA Bank, and Development Bank of Kenya, had not met the Sh3 billion target set for the end of 2025 by June this year. The CBK has warned that it could downgrade banks that fail to meet the capital requirements to microfinance banks.
CBK Governor Dr. Kamau Thugge stated that the regulator has communicated its position to the National Treasury, expressing concerns about the banks' ability to meet the target. Dr. Thugge disclosed that banks whose capital was below the set target were yet to respond to the regulator amid confusion in the sector over the higher core capital.
Sources within the sector indicated that the Treasury did not consult the CBK when it decided to extend the deadline following lobbying by small banks. The regulator has now stamped its authority in the industry, asking banks to stick to the capital-raising schedule in the law. A CEO of a top bank noted that the National Treasury has no regulatory mandate and that the Banking Act should be followed.
The capital-raising requirement kicked off last year with a minimum core capital target of Sh3 billion from Sh1 billion previously. The CBK said banks are facing risks that require capital buffers, notably climate change and cybersecurity shocks. The regulator reckons that the collapse of a bank, even a small one, could cause systemic shocks in the industry and hurt the economy.
The capital requirements have opened the window for new players to enter the banking sector, with African banks, including Egypt's Commercial International Bank (CIB), Nigeria's Access Bank, and South Africa's Nedbank, seeking to expand in Kenya. The move is expected to spur consolidation and buyout deals in Kenya, which also appeals as a hub for travel and regional bank headquarters.
Key points
- The Central Bank of Kenya and the Treasury have differing views on the capital requirements for commercial banks.
- The CBK has directed banks to stick to the initial plan of raising minimum core capital, while the Treasury has set a one-off hard deadline of December 2032.
- The capital requirements have opened the window for new players to enter the banking sector, with African banks seeking to expand in Kenya.
