- The affected banks will have to either make shareholders’ cash calls, merge or sell equity stakes to comply with the law.
About 22 banks will be affected by Treasury secretary Henry Rotich’s proposal to raise minimum capital to Sh5 billion in the next three years.
The affected lenders include K-Rep, Habib, Oriental, UBA Kenya, Victoria and Equatorial commercial banks which will have to either make shareholders’ cash calls, merge or sell equity stakes to comply with the law.
The affected lenders are all private institutions with core capital of between Sh934 million and Sh4.6 billion as at December 2014.
“They can raise money from existing shareholders or sell equity through private placement or initial public offering (IPO) at the NSE,” said Francis Mwangi, an analyst at Standard Investment Bank (SIB).
All the Nairobi Securities Exchange (NSE)-listed lenders are already compliant, with KCB having the largest core capital of Sh57.8 billion as at the end of last year.
Mr Rotich said in his Thursday budget speech that the sharp increase in minimum tier one capital — comprising equity and declared reserves — will boost banks’ ability to finance larger projects while safeguarding their stability.
Analysts say the new core capital target could fuel a new round of deal-making in the banking sector.
Mr Mwangi sees a situation where some lenders could merge first before selling equity in the combined business. He noted that those close to compliance, such as Guaranty Trust Bank with a core capital of Sh4.6 billion, could meet the threshold just by retaining earnings over the next three years.
Centum Investment Company, the majority owner of K-Rep Bank, had announced that it would inject Sh1.6 billion of new capital into the lender before the higher tier one capital was announced.
Mr Rotich’s announcement could hasten the process of bringing the lender, which had a core capital of Sh2.3 billion in December, to compliance ahead of the December 2018 deadline.
Previous capital compliance deadlines have, however, been extended as was the case when banks were required to raise their minimum core capital from Sh250 million to the current Sh1 billion.
Former KCB chief executive and now partner at Deloitte East Africa, Martin Oduor-Otieno, says the higher capital level will help to create larger banks that can lend big loans.
“This is a good move aimed at creating larger institutions with capacity to invest in innovation, systems, products and support bigger (as well as smaller) businesses,” said Mr Oduor-Otieno.
The small lenders have focused on niche SME banking, thriving on customers drawn from sectors like trade, manufacturing and transport.
The big banks, which dominate corporate banking, have meanwhile expanded their reach into retail and SME banking at a time when the overall banking industry has registered robust growth in credit and profits.
Affected banks include, Guaranty Trust Bank (Sh4.6bn), Gulf African (Sh3bn), Victoria (Sh2.6), K-Rep and Giro (Sh2.3bn a piece), Jamii Bora and Habib Zurich (Sh2.1bn), ABC (Sh1.9bn), and Habib Bank and Transnational (Sh1.8bn each).
Development Bank of Kenya and Guardian Bank (Sh1.7bn), Fidelity Commercial Bank (Sh1.5bn), First Community and Oriental Commercial Bank (Sh1.4bn), Paramount Universal (Sh1.3bn), Middle East Bank (Sh1.2bn), UBA Kenya, Credit Bank and Consolidated Bank (Sh1.1bn), Dubai Bank (Sh1bn) and Equatorial Commercial Bank (Sh934 million). Charterhouse Bank, which has been under statutory management since 2006, did not publish accounts in 2014.