Multinational bank Standard Chartered Plc expects Kenya to attract more foreign direct investments (FDIs) as the moratorium on the licensing of new banks is lifted from July 1.
The lender says the end of the near-decade moratorium would allow the entry of new foreign banks, incentivising new foreign capital flows by showing the strength of Kenya’s economy.
“For now, Kenya does not have many international banks participating. We are at a stage where we should have more of these banks, and this would be indicative of the rest of the world that the country is open to investments,” Standard Chartered Global Co-Head of Financial Institutions Coverage Jerry Zhang told the Business Daily.
“Foreign institutions are part of the infrastructure of the economy, and Kenya needs to diversify this.”
The Central Bank of Kenya (CBK) announced the lifting of a moratorium on licensing of new commercial banks, effective from July 1, after freezing new entries since November 2015.
The moratorium was in the backdrop of the back-to-back collapse of three lenders—Chase Bank, Imperial Bank and Dubai Bank.
New entrants into the banking industry have had to either acquire an existing lender or merge, limiting the means through which foreign banks would set up shop in Kenya and eliminating greenfield expansions.
Lagos-headquartered Access Bank, for instance, entered the Kenyan market through its acquisition of Transnational Bank in 2019, while Somali lender Premier Bank Limited acquired First Community Bank in March 2023.
Kenya has international banks with local subsidiaries such as Standard Chartered Bank Kenya, Absa Bank Kenya and Stanbic Bank Kenya, whose parents are based in Europe and South Africa.
The international banks in Kenya have, however, mostly played second fiddle to local banks that dominate the sector with KCB Group, Equity Group, Co-operative Bank of Kenya and NCBA Group being the largest of tier I lenders.
The prospect of new international banks is expected to increase competition for the local banks. However, the rivalry is seen as a silver lining in boosting the quality of services to customers.
“It’s always good to invite the best international banks to come in because that will elevate the banking services in Kenya. With competition, banks will beef up services and try to do a better job,” said Ms Zhang.
The CBK said the moratorium on the licensing of new banks was against a deterioration in governance, risk management and operations.
The near decade-long pause on new licensing was intended to provide space for the strengthening of the Kenyan banking sector.
The apex bank said that significant strides had been made in strengthening the legal and regulatory framework for Kenya’s banking sector.
New licensees will be required to have a core-capital base of Sh10 billion or provide the CBK with plans of reaching the threshold set by the Business Laws (Amendment) Act 2024.
CBK Governor Kamau Thugge said in a recent interview that the entry of new banks, while raising the competition for locals, would help address other pertinent issues in the industry, such as the high-interest rate regime.
“You can bring in banks as long as they can show us that they will be able to get Sh10 billion within five years. This opens the sector up for competition, and that may push interest rates down,” he said in an April interview.
Kenya has marked underlying interest from foreign banks despite the lengthy moratorium, with the JPMorgan Chase approval of a representative office last year after a 12-year wait to reveal the long-standing interest by foreign banking institutions in expanding into the Kenyan market.
