CBK says banks don’t need much more capital

The Central Bank of Kenya (CBK) building in Nairobi. FILE PHOTO | NMG 

By KEVIN MWANZA

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Summary

• Banks have been readying themselves and their clients for the new reporting changes that will require them to gather more data than just customers’ credit history when lending and provision more for loans that were previously considered good.
• Most lenders have this year reported lower or marginal growth in profit after a rate capping law introduced last year squeezed their interest margins on loans.

The central bank has said the introduction of new international accounting rules beginning next year will not lead to major capital raising by Kenyan lenders as they already have enough capital buffers for any required provisions.

Patrick Njoroge, the Central Bank of Kenya (CBK) governor, told a press briefing on Friday that the coming into effect of International Financial Reporting Standard (IFRS) 9 in January was still being discussed by regulators at a regional level.

“The modalities and implementation of IFRS 9 in the banking sector are still unclear in many jurisdictions. There are certain points that need to be dealt with,” said Dr Njoroge.

“We have to appreciate that our institutions have some capital buffers in conservation already, which allows them to have some elbow room in this area. There are of course other ways, if indeed the IFRS lead to increased provisions, to mitigating this.”

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Commercial banks have been readying themselves and their clients for the new reporting changes that will require them to gather more data than just customers’ credit history when lending and provision more for loans that were previously considered good.

Most lenders have this year reported lower or marginal growth in profit after a rate capping law introduced last year squeezed their interest margins on loans.

The sector’s ratio of gross non-performing loans (NPLs) stood at 10.6 per cent at the end of October as banks came to terms with the effects of the interest rate capping law that came to effect in September 2016.

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Dr Njoroge said the increase was “not that dramatic “or significant as banks were still finding ways to recover their monies.

“The strategy has not changed. Banks are aggressively looking at the recovery of their NPLs,” he said. “We are very particular about the way banks classify loans. It’s important to declare they are not trying to hide NPLs,”

The existing accounting rules, IAS 39, which was hugely blamed for the 2008 global financial crisis, is regarded as a reactive standard that only makes banks to make provision when there is an event to justify so.