Twelve banks, including Housing Finance Company (HFC), Access Bank Kenya and Credit Bank, face a race against time to raise about Sh11.85 billion fresh capital by end of next year or opt for mergers and acquisitions if President William Ruto signs a new Bill into law.
The Bill, passed by Parliament last week, seeks to raise banks’ minimum capital ten-fold to Sh10 billion within five years.
The current minimum capital requirement is Sh1billion and banks are to raise the buffer gradually over the five years.
The 12 banks closed September this year with core capital below the mandatory Sh3billion that they will be required to hold by the end of next year in line with the Business Laws (Amendment) Bill, 2024.
President Ruto’s signature will see the 12 banks require about Sh11.85 billion collectively to raise their core capital from their current position.
Kenya is following neighbouring countries in increasing the compulsory capital in a bid to boost the stability of the sector that holds close to Sh6 trillion customer deposits.
The immediate pressure falls on the 12 who each currently have less than Sh3 billion — the threshold that is required by December 2025.
Private equity firms seeking to invest in Kenya’s banking sector will have even more options as more lenders race to comply with the required ultimate figure of Sh10 billion by 2029.
The minimum capital will move to Sh5 billion by the end of 2026 and Sh7 billion by the close of 2027. The banks will then be required to boost the figure further to Sh8 billion by end of 2028 and take it to Sh10 billion by December 2029.
Central Bank of Kenya (CBK) governor Kamau Thugge expects that the move, aimed at strengthening the sector’s resilience, will trigger a fresh round of mergers and acquisitions within the next five years given that 24 banks had core capital of less than Sh10 billion by end of last year.
“We do hope that there will be mergers. In our view, having stronger banks and stronger capital base will be able to withstand many of the risks we are seeing, whether it is from cybersecurity or fake news,” said Dr Thugge during last Friday’s post-monetary policy committee media briefing.
“This is the right way to go in terms of having financial presence in the region and maybe not just in the East African region but the wider sub-Saharan Africa. You can only do that when you have strong banks and banks with a strong capital base.”
State-owned Consolidated Bank of Kenya faces the biggest deficit. The lender will require at least Sh3.68 billion to comply with the required minimum of Sh3 billion by end of next year, going by the negative core capital of Sh683.31 million it held at the end of September.
Access Bank Kenya, a subsidiary of Nigeria’s largest lender, Access Group, requires about Sh1.73 billion by the end of next year. This means its parent firm will have to step in with additional capital, even as it also nears acquisition of National Bank of Kenya from KCB Group for an estimated Sh13.2 billion.
HFC, which closed September with a Sh1.69 billion core capital, will require additional Sh1.3 billion to comply with the minimum threshold by the end of next year. The lender has been in the market looking for about Sh6 billion through a rights issue to boost its capital base.
UBA Kenya will require an additional Sh1.26 billion to be compliant in 2025, Middle East Bank of Kenya Sh956.93 million, Development Bank of Kenya Sh856.93 million, Credit Bank Sh544.66 million and Paramount Bank Sh521.9 million.
Also in the list are M-Oriental Bank Kenya (Sh417.59 million), Commercial International Bank Kenya (Sh325.89 million), Premier Bank Kenya (Sh164.58 million) and Habib Bank AG Zurich (Sh84.87 million).
The National Assembly’s Committee on Finance and National Planning had recommended that banks be given eight years to comply as opposed to three years that had been proposed in the initial bill. The House, however, overruled the committee and settled on five years.
Kenya Bankers Association (KBA) had pushed for eight years, cautioning that setting a short period for compliance window would lead to unintended short-term consequences. It added that the impact on smaller banks, credit accessibility, operational priorities, and sector-wide adjustments “may be disruptive.”
The country’s banking sector has significantly transformed since 2012 when the Sh1 billion minimum capital was introduced.
Assets have grown to Sh7.568 trillion as at September this year from Sh2.3 trillion 12 years ago.
This is the second attempt in a decade to review the minimum capital threshold for lenders. A similar proposal in 2015 to raise the requirement to Sh5 billion was rejected by Parliament.
