Treasury Cabinet Secretary, Prof Njuguna Ndung’u has presented a plan to raise the minimum core capital requirement for banks from the KSh 1 billion to KSh 10 billion.
- The CS argues that this move will be progressive while engaging the market for an appropriate time table to achieve the goal.
- According to Treasury, the move is meant to build stronger banks, increase their muscle to finance big projects.
- Currently, Kenya requires a minimum capital of KSh 1 billion for those who wish to start a bank.
“This is intended to strengthen the resilience and increase the bank’s capacity to finance large scale projects while creating sufficient capital buffers to absorb and withstand shocks posed by the continuous emerging risks associated with adoption of technology and innovations as institutions expand.” said Prof Njuguna Ndung’u on Thursday.
“The capital requirements for banks need to be increased. We have seen increased risks whether it is from climate change or cybersecurity,” he added.
According to data from the Central Bank of Kenya, only 15 out of 39 licensed lenders, in the year ended 2022, could meet the now proposed KSh 10 billion threshold if it applied today. This puts more than half of the banks on edge. However, with the tightening being progressive, banks have a time-bound chance to be at par.
The proposal could lead to banks tapping alternative funding coupled with possible mergers and acquisitions with some lenders scaling down from their banking licenses.
Banks are required to maintain 10.5% core capital to total risk-weighted assets, and 14.5% total capital to risk-weighted assets.
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