The Central Bank of Kenya (CBK) has written to the 24 banks whose core capital falls below Sh10 billion, asking for details on how they intend to raise new funds to satisfy the recently enhanced minimum capital adequacy level.
The Business Laws (Amendment) Act, 2024, which was signed into law last December, requires banks to increase their minimum core capital from Sh1 billion to Sh10 billion over the next five years.
The top-up starts with an increase to Sh3 billion by the end of 2025, progressing to Sh5 billion by 2026, Sh7 billion by 2027, Sh8 billion by 2028 and finally Sh10 billion by 2029.
By the end of September (the latest available bank financials), 12 banks had core capital of below Sh3 billion, and another 12 fell below the Sh10 billion threshold.
Even without a regulatory stipulation, banks need to periodically raise their capital levels to keep up with growth in lending, and also to improve their ability to weather shocks. They are limited by law to lending no more than 25 percent of the equivalent of core capital to a single borrower (single obligor rule).
“We have written to the banks to tell us what their plan is, to raise their capital to the Sh10 billion, not just the first year. We will be engaging them once we get the responses to see exactly how they will meet the capital requirements,” said CBK Governor Kamau Thugge in a briefing last week, without giving further timelines of the exercise.
Banks ideally raise core capital from existing shareholders, through rights issues for instance, but can also do so through equity sales either through private placement or initial public offering.
In December, HF Group concluded a rights issue that raised Sh6 billion, which partly went towards boosting its capital levels. The company’s banking unit was among the 12, whose core capital stood below Sh3 billion as of September last year.
The other lenders with core capital below Sh3 billion by the end of September included Access Bank Kenya, Consolidated Bank of Kenya, UBA Kenya, Middle East Bank of Kenya, Development Bank of Kenya, Credit Bank and Paramount Bank.
Also on the list were M-Oriental Bank Kenya, Commercial International Bank Kenya (CIB), Premier Bank Kenya and Habib Bank AG Zurich. In addition to rights issues or equity sales, banks also have an option of merging or participating in acquisitions to create larger, better-capitalised units.
Dr Thugge had earlier said that the enhanced capital requirements, aimed at strengthening the sector’s resilience, will trigger a fresh round of mergers and acquisitions within the next five years.
Kenya Bankers Association had pushed for eight years to meet the higher capital requirement, arguing that the shorter window would negatively impact smaller banks, credit accessibility, and operational priorities.
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 of September this year from Sh2.3 trillion 12 years ago.
This was 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.
