The cost of loans is set to rise again as the Central Bank of Kenya (CBK) prepares to increase annual licensing fees by 22 times to Sh7.5 billion amid possible resistance from lenders.
Draft regulations show that the CBK wants to charge banks one percent of revenues as permit fees as opposed to a token flat rate, citing an “increasingly complex” regulatory and supervisory role.
The shift will prompt a steep rise in the fees that will be increasing automatically annually in the first review in 35 years.
Bankers reckon that they will pass on the additional costs to consumers in the form of costly loans, which will trigger repercussions across the economy.
Currently, banks pay permit fees of between Sh30,000 and Sh150,000 for each branch depending on locations and head office charges of Sh400,000, which pushed their permit fees to Sh335 million in the year to June 2024.
Kenya Bankers Association (KBA) Chief Executive Raimond Molenje said a rise in licensing fees will increase operating costs, prompting lenders to pass it to consumers.
The public, including banks, have up to March 31 to give their input on the draft fee regulations that the CBK aims to introduce in the new fiscal year starting in July.
“We (banks) will provide our feedback to the CBK. But upfront, what we see is that there is going to be an increase in operating costs and any increase in the cost of doing business will eventually filter into the cost of credit,” Mr Molenje said in a phone interview.
“We are going to receive feedback from all banks and provide our position to the CBK, including possible adjustments such as opting for net income. In the current form, fees are on gross income so that means what you spend to earn that revenue is immaterial. That will pose a big disadvantage to banks with huge costs or those in losses.”
Based on audited results for the year ended December 2023, the proposed fees will see Equity Bank part with Sh1.81 billion for permit fees on Sh181.68 billion operating income.
KCB Group will part with Sh1.65 billion on its Sh165.24 billion operating income.
To ease the pain on bankers, the CBK plans to stagger implementation of the revenue-based model with the regulator seeking 0.6 percent of the revenues in the first year, 0.8 percent in year two and one percent in 2027.
It reckons it will net Sh4.5 billion, Sh6 billion and Sh7.5 billion respectively in the staggered years.
However, the banks’ operating income stood at Sh842 billion in 2023 and is expected to breach the Sh1 trillion mark ahead of 2026, guaranteeing the CBK fees of Sh10 billion annually.
The payment of fees under a revenue-based model will mirror the practice in Uganda and Rwanda where the regulators take 0.05 percent and 0.5 percent respectively.
The Communication Authority of Kenya uses a similar model and takes up 0.4 percent of gross earnings.
Currently, the CBK charges banks Sh500,000 for holding company, Sh400,000 for head office, between Sh30,000 and Sh150,000 per branch depending on location and Sh1,000 for the agency units.
The CBK is forecasting banks’ profits to fall by an estimated 1.8 percent in the first year, 2.4 percent in the second and 3.1 percent in the third year.
The 1.8 percent will be equivalent to Sh5.13 billion based on 2023 profits of Sh285 billion which could set up investors for a hit on dividends— a driver on the performance of the lenders’ shares at the Nairobi bourse.
The profit dent also looks set to hit the bonus payments to bank executives for a sector that is known to pay higher rewards to top managers.
However, banks have vowed to defend their profits by passing the additional licence cost to customers.
The CBK says current fees have remained unchanged since 1990 and need to reflect changes in the banking landscape, including size and the lenders’ risk profile.
“The objective of the proposed review has been necessitated by the increasing level of oversight by CBK which requires significant resources to effectively discharge its supervisory mandate, including consolidated and cross-border supervision,” the CBK said.
“In addition, the proposed review is aimed at establishing a license fee framework aligned with international standards and modern banking dynamics.”
The regulator seeks the fees pegged on the gross annual revenue of the audited financial statements of the preceding year.
“The fees... shall be payable before the granting of a licence to an institution to carry on business under the Act and on an annual basis no later than 15 days after publication of the audited financial statement of an institution,” said the CBK.
