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CBK To Raise Minimum Capital Requirements Progressively To Ksh 10 Billion

BY Standard Investment Bank · June 19, 2024 01:06 pm

The Central Bank of Kenya (CBK) has announced plans to progressively raise the capital requirements for banks tenfold from KES 1.0bn (USD 7.8m) to KES 10.0bn (approximately USD 77.8mn) – with the smaller banks likely to be affected by the most.

The Central Bank Governor first hinted at this intention in the National Treasury’s 2024 Budget Policy Statement. As part of the legislative changes required, we anticipate that public participation meetings will be held to gather opinions on the proposed increase.

We estimate that this 10-fold increase in the capital may take around five years to implement if the proposal is approved by the National Assembly based on trends in other markets.

According to 1Q24 company filings, 24 banks out of 38 (excluding Spire Bank) fall below the threshold of the new capital requirements.

CBK will consider various factors such as the evolving banking sector landscape, the emergence of new risks (e.g. cyber security risks, operational risks brought about by cross-border operations, climate-related risks, etc.), increased supervisory or surveillance costs, and international best practices.

This move follows an earlier announcement that the CBK plans to undertake several initiatives aimed at enhancing surveillance while encouraging banks to strengthen their governance frameworks and business models, embark on mergers and acquisitions, and other capital-strengthening efforts.

Furthermore, the apex bank revealed that it is reviewing the licensing fees, as announced in the National Treasury’s 2024 Budget Policy Statement. Notably, the fees were last reviewed in 1990 and were based on the number of branches a bank had.

We anticipate that compliance costs will rise due to the initiatives mentioned above, as well as the development of revised banking penalties which increase the scope of legal violations.

Additionally, we expect an increase in financial monitoring as a result of Kenya being added to the Financial Action Task Force (FATF) Grey List in February 2024. Amongst the East African Community member states, Kenya will have the highest minimum core capital quantum, once approved.

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