Banks saved from increase in core capital to Sh5bn


Kiambu Town MP Jude Njomo. FILE PHOTO | NMG

Banks have been spared a law that would have compelled them to increase their core capital from Sh1 billion to Sh5 billion over the next four years after MPs voted to reject amendments to the Finance Bill, 2018.

The MPs shot down the proposal by Kiambu Town MP Jude Njomo, the architect of the interest rate capping law, to amend the Banking Act to raise minimum capital to Sh2 billion by December 31, 2019, Sh3.5 billion (2020) and Sh5 billion (2021).

This is the second time in as many years that Parliament has rejected the proposal, having thrown out a similar move in August 2015.

Mr Njomo told MPs that the changes were necessary to create financial stability. He said that two banks, Imperial and Chase, had collapsed in the two years that MPs were pushing for an enhanced capital base for lenders.

READ: CBK downgrades banks sector rating on reduced capital

The MPs argued that the amendment would force mergers and acquisitions as small lenders — which have been struggling to raise the Sh1 billion minimum core capital — struggle to survive.

Central Bank of Kenya data shows that 23 of the 43 local banks had less than Sh5 billion core capital by December. The Treasury has in the past supported consolidation triggered by a rise in core capital, arguing that it would lead to stronger and better capitalised lenders to support more investment.

The CBK had earlier rejected the Treasury’s move to increase banks’ capital, saying it would lock out small lenders.