Banks will have up to eight years to raise their minimum statutory capital to at least Sh10 billion, if Parliament approves select committee’s proposal to more than double the compliance period to help small lenders conform without strain.
The Parliamentary committee on finance and national planning has agreed with Kenya Bankers Association (KBA) that requiring banks to increase the minimum or core capital from the current minimum of Sh1 billion to Sh10 billion within three years as proposed in the Business Laws (Amendment) Bill, 2024 will put a strain on small banks and hurt their ability to lend.
The proposal, if adopted in Parliament, will offer a reprieve to lenders that currently have core capital below Sh10 billion.
The bill had proposed that all lenders increase their minimum core capital to Sh3 billion by end of next year, take it to Sh6 billion in 2026 and hit Sh10 billion by December 2027.
The committee said that while it is true that the core capital has remained unchanged for the past 12 years and needed review to capture the growth in the sector, the proposed timeline for increasing the minimum core capital to enhance stability was too short.
“While it is evident that an upward adjustment is necessary to align with the current economic and financial environment, the proposed timeline of three years in the bill for banks to meet the revised minimum core capital requirements is considered too short,” said the committee.
“Extending this compliance period to eight years would provide a more practical and manageable timeframe for banks to raise the required capital, allowing them to strategise and implement measures that ensure sustainable compliance without destabilising their operations or the wider financial sector.”
Central Bank of Kenya data showed 24 out of the 38 banks had core capital below Sh10 billion by end of December last year, with the figure being below Sh3 billion for 12 of them.
Law firm Anjarwalla & Khan LLP had told the committee that the three-year compliance period would pose a compliance headache and proposed for extension of the time or a reduction of the figure from Sh10 billion.
KBA told the committee a three-year 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 proposed gradual increase of the core capital within three years is too ambitious for smaller banks as they would need to inject more capital in the next three years,” the committee cited KBA.
The Treasury first proposed the minimum capital raise during the reading of the 2024 budget, arguing that this was necessary to enhance the stability of the sector that holds over Sh5.68 trillion in deposits. Kenya’s push for increased capital level mirrors the move by neighboring countries Uganda and Tanzania.
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.
