Banks support Rotich’s bid to raise capital

The banking sector has backed the Treasury’s fresh bid to raise the capital adequacy requirement for lenders.

However, the Kenya Bankers Association (KBA) on Friday said the industry was keenly awaiting details of the proposed minimum capital increases to understand their impact.

“Any effort to enhance stability in the sector is welcome. We will be waiting to see the exact proposals and how they impact the industry,” KBA chief executive Habil Olaka said in an interview on Friday.

MPs threw out a similar proposal in the Finance Bill 2015 following strong opposition by the Central Bank of Kenya (CBK).

But in his budget statement, Treasury secretary Henry Rotich said he plans to re-introduce the proposals and is banking on MPs to pass the amendment in view of the recent turbulence.

“I am seeking to reintroduce the proposals and I am hopeful that members will look at them more favourably in light of the recent developments in our banking sector,” said Mr Rotich.

CBK is yet to make public its position on the fresh proposals.

READ: State seeks five-fold capital increase for banking stability

Under the original proposal tabled in last year’s budget, banks would be compelled to have a minimum capital of Sh5 billion up from Sh1 billion.

The lenders would be given three years to meet the new capital threshold. Only about 20 out of the 44 banks licensed at the time would have immediately met the threshold.

Mr Rotich’s fresh proposal could open another tussle between the Treasury and CBK, which is on record arguing that small banks are necessary in the economy as they serve niche clients which contribute to overall economic growth.

The higher capital requirement is seen as one of the ways of pushing for industry consolidation as they could trigger mergers and acquisitions of the smaller lenders with bigger suitors.