Banks race to raise Sh1bn core capital ahead of deadline

• Jamii Bora Bank, UBA, First Community and Fidelity are some of the lenders whose capital is below the statutory minimum, as per their latest financial statements.
• Dubai and Credit banks, which were below the statutory minimum at the beginning of the year, have not yet released their half-year results which would show whether they have raised the core capital.
• The Central Bank of Kenya (CBK) moved to increase the capital requirement for banks in 2008 to bolster the institutions’ ability to weather local and global economic shocks.
• Core capital means permanent shareholders’ equity in the form of issued and fully paid share of common stock, plus all disclosed reserves, less goodwill or any other intangible assets.

Six commercial banks are racing to meet a regulatory deadline that requires all lenders to have a minimum core capital of Sh1 billion by the end of this year.

Jamii Bora Bank, UBA, First Community and Fidelity are some of the lenders whose capital is below the statutory minimum, as per their latest financial statements.

Wednesday, the Jamii Bora Bank CEO Samuel Kimani said the lenders’ shareholders had been called to inject capital in a rights issue that opens in October.

Dubai and Credit banks, which were below the statutory minimum at the beginning of the year, have not yet released their half-year results which would show whether they have raised the core capital.

“We are doing a rights issue for Sh500 million in October and most of our shareholders have confirmed participation,” said Mr Kimani.

The cash call will see Jamii Bora’s core capital rise to Sh1.3 billion from the current Sh800 million.

Jamii Bora’s peer lender, UBA Kenya, told the Business Daily on Tuesday that it is negotiating with its Nigerian parent firm for a capital boost.
UBA Kenya had a core capital of Sh722 million at the beginning of the year.

“We are getting additional capital to empower us do the kind of business we want to do here,” said the bank’s managing director Mr Tunji Adeniyi in an interview on Tuesday.

The Central Bank of Kenya (CBK) moved to increase the capital requirement for banks in 2008 to bolster the institutions’ ability to weather local and global economic shocks.

The plan was to have the banks raise their core capital gradually to a minimum of Sh1 billion by the end of this year from the then statutory requirement of Sh250 million. The industry’s total core capital stood at Sh244 billion at the end of last year from Sh138 billion in 2008.

Last year, only Dubai Bank failed to meet the set Sh700 million albeit marginally as it ended the year with a balance sheet of Sh696 million.

“We have a shortfall but will definitely meet the requirement through retained earnings and might also go for other revenues such as a rights issue which is a consideration,” said Mr Rana Sengupta, the managing director of Fidelity Commercial Bank.

Core capital means permanent shareholders’ equity in the form of issued and fully paid share of common stock, plus all disclosed reserves, less goodwill or any other intangible assets.

Mr Sengupta said that the bank could only use half of its full-year unaudited net profit to boost its core capital as per the regulator guidelines.

Shareholders in the industry are expected to continue injecting more capital into the banks over the next two years if guidelines proposed by the Central Bank on raising the capital adequacy ratios are implemented.

The lenders’ lobby, Kenya Bankers Association (KBA), said that it expected all banks to meet the statutory capital requirement by end of year but pointed out that they had requested the regulator to postpone the effective date of the new capital adequacy ratios.

“All banks are on track to get the minimum Sh1 billion by end of the year,” said CEO Habil Olaka.

Mr Olaka said that the proposal to have banks maintain a capital conservation buffer of 2.5 per cent above the minimum capital adequacy ratios would be a challenge to some of the lenders who have to turn to their shareholders for capital injection.

Capital adequacy ratios dictate the size of business a bank is able to conduct in terms of deposit mobilisation and loan disbursements while the statutory capital level is an absolute figure.

This year, banks have turned to their shareholders for funding as other options of raising capital became more expensive and their capital adequacy ratios thinned.

DTB, Family Bank, CFC Stanbic, Standard Chartered, Oriental Bank, and NIC have declared or conducted rights issues.

gngigi@ke.nationmedia.com