Banks require Sh9bn to meet capital levels

The National Treasury building in Nairobi, Kenya. Termed by the National Treasury as one informed by a need to encourage “growth and stability of the financial sector,” the rule has already met its first opposition from the Central Bank governor, Dr Patrick Njoroge. PHOTO | FILE |   NATION MEDIA GROUP

In Summary

• By December 31, 2014, at least 15 banks were below that threshold. Of the 15, ABC Bank requires the least capital injection, at Sh72 million, and Equatorial Commercial Bank, in which Mwalimu Sacco recently acquired a controlling stake, needing Sh1.1 billion to meet the target.
• Termed by the National Treasury as one informed by a need to encourage “growth and stability of the financial sector,” the rule has already met its first opposition from the Central Bank governor, Dr Patrick Njoroge.

By WACHIRA KANG'ARU
More by this Author

Fifteen banks will need to raise at least Sh9 billion by December next year to comply with new minimum capital requirement rules proposed by the government.

The Finance Bill, 2015 — which is due for tabling before the National Assembly, to approve recommendations made by the National Treasury Cabinet Secretary Henry Rotich in his Budget speech — details the timelines to meeting the Sh5 billion target for each bank by 2018.

Proposals to amend the second schedule of the Banking Act puts December 31, 2016 as the deadline for all commercial banks and mortgage lenders to have at least Sh2 billion as minimum core capital.

By December 31, 2014, at least 15 banks were below that threshold. Of the 15, ABC Bank requires the least capital injection, at Sh72 million, and Equatorial Commercial Bank, in which Mwalimu Sacco recently acquired a controlling stake, needing Sh1.1 billion to meet the target.

The 15 banks and six others will need to raise an additional Sh28.7 billion by December 31, 2017 to meet the set Sh3.5 billion each, requirement. The intense capital mobilisation schedule will see each of the 15 lenders raising at least Sh1.5 billion to meet the 2017 target.

Between January and December 31, 2018 all the 21 banks currently below the Sh5 billion limit will need to raise an additional Sh1.5 billion each, while GT Bank should come up with Sh333 million.

OPPOSITION

Termed by the National Treasury as one informed by a need to encourage “growth and stability of the financial sector,” the rule has already met its first opposition from the Central Bank governor, Dr Patrick Njoroge.

Appearing before the National Assembly’s Finance, Trade and Planning Committee chaired by Ainamoi MP Benjamin Langat for vetting, Dr Njoroge indicated that the requirement may need a re-look “to safeguard small banks from extinction”.

“Raising the capital forces some sort of consolidation and that means the small banks may either have to be merged or collapse. The question is, are there risk or inefficient? I will ask those question because these banks have niches which they serve and once the bigger banks swallow them the niches will be neglected. There is a balance of risk here that may need to be relooked,” said Dr Njoroge.

Generally, the market projection is that the small banks will have to merge, sell out or close shop if National Assembly agrees with Mr Rotich’s proposal.

To increase surveillance, Central Bank is seeking more power to vet shareholders beyond the current limit of only those holding over five per cent stake in a bank.