Banks set for new capital drive after bountiful year
What you need to know:
Central Bank of Kenya passed new capital adequacy rules that will require banks to maintain a capital buffer of 2.5 per cent over and above the minimum capital adequacy ratios starting June next year.
The regulator also expects banks to cover their market and operational risks which are pegged on the size of a lender.
The new capital requirements have seen some lenders such as Fina and Chase Bank tie up with strategic investors, a trend that could catch momentum in the coming months as the race to comply picks up.
Commercial banks are expected to start a new drive for additional capital in the coming months, to meet new CBK guidelines set this year.
The Central Bank of Kenya passed new capital adequacy rules that will require banks to maintain a capital buffer of 2.5 per cent over and above the minimum capital adequacy ratios starting June next year.
The regulator also expects banks to cover their market and operational risks which are pegged on the size of a lender.
Market risks involve aspects like depreciation of the shilling and movement in interest rates while the operation risks factors losses that may result from system breakdown and staff thefts. The two risk elements are pegged on the bank’s growth, meaning that a lender will inject additional capital in line with their performance, which is likely to see them cut their dividend payouts.
“Majority of the banks are saying they will not be giving out more,” said Standard Investment Bank’s Francis Mwangi in an interview.
This is despite the lenders continuing to record improved performance having grown their profit before tax by 14.5 per cent by end of September.
The new capital requirements have seen some lenders such as Fina and Chase Bank tie up with strategic investors, a trend that could catch momentum in the coming months as the race to comply picks up. The lenders are also looking for management and boardroom experience to support their growth.
Fina Bank sold a 70 per cent stake to Guaranty Trust Bank of Nigeria in a Sh8.6 billion deal. Chase Bank ceded shareholding to Amethis Capital from France and Germany’s DEG in a Sh1.75 billion deal.
Equatorial Commercial Bank is still out looking for strategic investors to inject additional capital.
The small lenders are also looking for management and boardroom expertise needed to help them secure big clients especially in the nascent oil and gas sector.
International players have been interested to join the Kenyan market with Pakistan MCB Bank having sought regulatory approval to conduct due diligence in a Kenyan lender while US base JP Morgan has received approval to set up a representative office in the country.
Barclays Bank CEO Jeremy Awori had in an earlier interview with Business Daily said that with many lenders going into the market at the same time in search of additional capital, some could be forced to pay a high price to attract suitors.
Small banks are viewed to be riskier than their larger competitors, forcing investors to demand a premium for their investment in them.
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