Imperial Bank depositors protest outside the bank’s headquarters in
Nairobi, in October 2016. The Central Bank of Kenya has directed all
banks to review their business models and consider consolidation to
withstand shocks, after putting three financially distressed banks —
Dubai, Imperial and Chase — under receivership. PHOTO | NMG
East African banks face a tighter regulatory environment in
2019, with central banks moving to protect depositors in weak and
undercapitalised lenders and ensure stability in the sector.
The
region’s central bank governors, at a meeting in Kampala in August,
reiterated their commitment to enhancing policy co-ordination to build a
strong regional banking sector that can withstand external shocks and
reduce bank failures.
They have been implementing
regulations requiring banks to increase their core capital to withstand
financial shocks amid rising non-performing loans.
These
requirements are part of efforts by the East African Community partner
states to implement the Basel III guidelines, which were introduced
globally after the 2008 financial crisis showed banks that they need to
be more resilient to credit stress.
Already, the
National Bank of Rwanda is reviewing a proposal to quadruple the minimum
core capital for banks to Rwf20 billion ($22.6 million), from Rwf5
billion ($5.6 million) while Uganda and Tanzania have also increased the
core capital for banks in line with the region’s financial sector
integration agenda.
Rwandan banks will be expected to
build up their core capital to Rwf15 billion ($17.2 million) in the
first three years after the publication of the regulations, then add the
remaining Rwf5 billion ($5.7 million) in the next two years.
In 2007, Kenya increased the minimum core capital for banks to
Ksh1 billion ($10 million) from Ksh250 million ($2.5 million), setting
December 31, 2012 as the deadline.
However, an attempt
by the Treasury Cabinet Secretary Henry Rotich to further increase the
bank’s core capital to Ksh5 billion ($50 million) by December 31, was
met with strong opposition from parliament.
Business models
The
Central Bank of Kenya has directed all banks to review their business
models and consider consolidation to withstand shocks, after putting
three financially distressed banks — Dubai, Imperial and Chase — under
receivership.
In Dar, the Bank of Tanzania shut down
five lenders early in 2018 and put another one under administration for
breaching capital requirements.
Bank M Tanzania Plc was
put under administration after it became insolvent. Covenant Bank for
Women Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’
Co-operative Bank Ltd and Meru Community Bank Ltd were shut down.
The
Bank of Uganda (BoU) also put Crane Bank under receivership whereafter
it was acquired by Dfcu Bank. BoU Deputy Governor Louis Kasekende says
many of the problems facing the banking industry can be solved if banks
pool resources and realise economies of scale, thereby reducing costs.
In
Rwanda, commercial banks posted mixed results in the nine months to
September 30, with almost half of the profits being generated by Bank of
Kigali, which is riding on its large capital base to finance corporate
clients, its countrywide presence to serve the retail segment and its
technology-driven banking platform to beat competition.
The
Bank of Kigali’s net profit during the period under review stood at
Rwf19.7 billion ($22 million), an 11.1 per cent increase from the
Rwf17.6 billion ($19.7 million) reported during the same period last
year.
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