Kenya’s Apex Bank Plans to Boost Banks’ Capital Requirements

Kenya is gearing up to raise capital requirements for its banks in a strategic move aimed at fortifying financial institutions against risks and facilitating their expansion into regional markets. Central Bank Governor Kamau Thugge unveiled plans to unveil proposals for increased capital thresholds in the coming month, signalling a proactive stance to safeguard the stability of the banking sector.

Speaking after a monetary policy committee meeting that maintained the benchmark interest rate at 13%, Thugge emphasised the necessity of bolstering banks’ capital buffers to mitigate emerging risks, including those stemming from climate change and cybersecurity threats. He underscored the importance of nurturing robust financial institutions capable of not only thriving in Kenya but also venturing into neighbouring markets within the region.

The proposed hike in capital requirements is poised to spur consolidation or prompt share offerings within Kenya’s banking landscape. Some lenders may opt to reevaluate their banking licenses in response to the regulatory adjustments.

This initiative mirrors similar endeavours in other African nations, with Nigeria recently announcing a ten-fold increase in capital requirements for select banks to stimulate increased lending activity and support economic growth. Similarly, Uganda has implemented new capital requirements, resulting in the reclassification of three lenders and the recruitment of new shareholders by three others.

At present, Kenya’s minimum capital requirement for banks stands at 1 billion shillings ($7.6 million). The country boasts 38 operational commercial lenders alongside a solitary mortgage finance company, according to data from the central bank.

Despite the proposed escalation in capital thresholds, Kenya’s commercial banks exhibit robust capital adequacy, with a ratio of 18.3% as of December, surpassing the mandated minimum of 14.5%. This underscores the sector’s resilience and capacity to withstand financial shocks.

As Kenya charts its course toward strengthening its banking sector, the proposed enhancements in capital requirements are poised to instil confidence among investors, enhance the sector’s stability, and pave the way for sustainable growth and expansion both domestically and across regional frontiers.