Banks race to hit Sh1bn capital base as deadline passes
he People walk past Central Bank of Kenya building in Nairobi. Photo/ File
What you need to know:
In 2008, CBK started a plan to increase banks’ capitalisation from the then Sh250 million in a graduated scale to Sh1 billion this year so as to ensure they had financial strength to absorb external economic shocks.
In 2009, the minimum core capital was set at Sh350 million, Sh500 million in 2010 and Sh700 million last year.
Seven banks, which were below CBK’s mark at the end of September, are hoping to raise the additional cash from shareholders and strategic investors.
At least seven commercial banks are racing to increase their capital to the minimum Central Bank of Kenya (CBK) requirement of Sh1 billion set to take effect Monday.
The seven banks, which were below CBK’s mark at the end of September, are hoping to raise the additional cash from shareholders and strategic investors.
Jamii Bora bank’s closed its rights issue payments on Friday, while United Bank of Africa (UBA) received a capital injection from the parent bank in Nigeria and Equatorial Commercial Bank invited strategic investors into the company.
“We went out to raise Sh520 million but received Sh700 million. We accepted Sh520 million so our core capital is now at Sh1.3 billion,” said Samuel Kimani, the CEO of Jamii Bora Bank.
UBA said it received Sh537 million from the parent company in September, at a time when its core capital had been eaten up by losses, pushing it below the then minimum requirement of Sh700 million. The bank’s core capital stood at Sh572 million at end of third quarter, the recapitalisation taking it to Sh1.1 billion.
Losses made during the year also ate into Equatorial Bank’s core capital which saw it drop from Sh1.05 billion at the beginning of the year to below Sh800 million. The bank had entered into an agreement with strategic investors, who were to provide Sh1.3 billion. The capital is, however, yet to be deposited with the bank.
“There was a slight delay in wiring the money. We have communicated with CBK to keep them in the know,” said Robert Shibutse, executive director at the bank.
Dubai Bank chairman Hassan Zubeidi said the lender, which ended last year Sh4 million short of the 2011 minimum capital requirement of Sh700 million, had raised its core capital to Sh1.044 billion from Sh872 million as at end of September.
The other banks which had not met the requirement by end of third quarter include Credit Bank, First Community Bank and Fidelity Bank. The three banks, which are marginally below the mark, should be able to comply if they report profits for the full-year as banks are allowed to provide for half of their unaudited earnings as part of their core capital.
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. In 2008, CBK started a plan to increase banks’ capitalisation from the then Sh250 million in a graduated scale to Sh1 billion this year so as to ensure they had financial strength to absorb external economic shocks. In 2009, the minimum core capital was set at Sh350 million, Sh500 million in 2010 and Sh700 million last year.
However, the regulator is likely to increase the minimum statutory capital further as market dynamics change. “Now that we have hit the target the regulator will be looking forward and at what other markets are doing. Countries like South Africa, Zambia and other comparables are higher so we may need to review,” said Habil Olaka, the CEO of Kenya Bankers Association.
Mr Kimani of Jamii Bora, said that he would be willing to support any efforts to increase capitalisation so long as it was to be done through a phased process.
“Capitalisation in Kenya is still very low if you look at other markets and from the recent rights issues, you can see that capital is there so long as you have the right strategy,” said Mr Kimani.
From the beginning of the year, banks have 18 months to comply with new adequacy ratios set by CBK which is seeking to ensure they maintain a conservation buffer of 2.5 per cent above minimum ratios to protect them from economic shocks similar to those witnessed in Europe and American markets. This will force banks to raise additional capital so as to increase the size of business they can handle.
