Treasury plan to raise core capital welcome

Central Bank of Kenya. FILE PHOTO | NMG

The proposal to raise the minimum or core capital for banks is a step in the right direction as it will further promote stability of the financial sector and place the country’s regulation in line with those of its peers in the continent.

The Treasury says the Central Bank of Kenya will review the minimum capital threshold, noting that the current requirement of Sh1 billion has been in place since 2012 despite rapid growth of the banking sector’s liabilities including customer deposits.

The Treasury did not indicate to what level the core capital will be raised. In 2015, the government had proposed to increase the minimum capital requirement to Sh5 billion over a three-year period but this was not implemented.

We believe the same figure and a transition period is still reasonable now. Were this to be implemented, several banks will have to raise fresh capital or merge with others to comply.

It is worth noting that many banks already have a core capital of more than Sh5 billion and their move to continue fortifying their balance sheets voluntarily has been good for business, helping them to gain the confidence of depositors.

Compared to most countries in the region, Kenya appears overbanked with 39 institutions. The small lenders serve specific niches and should be allowed to continue operating subject to raising their capital or merging with others.

Kenya's current minimum capital requirement of Sh1 billion trails that of its peers by a large margin. Uganda, for instance, has asked lenders operating in the country to have a capital equivalent to Sh6 billion by next year.

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