The Finance and National Planning Committee has recommended that the period for commercial banks to raise their capital to a minimum of KSh10 billion be extended from three to eight years.
The Kenya Bankers Association (KBA) lobbied for an extension of the period, initially set at three years.
The Labour Law (Amendment) Bill 2024 requires banks to raise their capital from a minimum of KSh1 billion to a minimum of KSh10 billion to support the banking sector.
Lenders believe that time is short for many banks to obtain the necessary capital and operate effectively.
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“The committee noted that 3 years, as proposed in the bill, is too short a time for the banks to restructure and achieve the KSh 10 billion core capital. The committee is proposing a phased-up approach of a maximum 8 years to achieve the set target of core capital,” the committee said.
The Ksh1 billion requirement was set in 2012.
A company with a lower capital base supports its core assets but is more vulnerable to bank failures. The Committee noted that the current minimum investment cannot support current economic and expected growth.
Banks are also expected to meet capital requirements of KSh 3 billion by the end of 2025. This means that smaller banks, mostly subsidiaries of Big Money banks, will be on the edge.
The proposal could see the bank tap other funding and possibly join other banks. Subsidiaries such as Kingdom Bank (a subsidiary of the Co-operative Bank), SBM Bank and CIB Kenya will need significant capital to survive the cuts.
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Some health experts have called for capital reductions at large banks, which control 80 per cent of the economy, while also consolidating their business operations, which could lead to the collapse of smaller banks. This could limit competition in the banking sector.
The move follows similar decisions by the Bank of Uganda and the Bank of Tanzania. Banks must have a core capital of 10.5% of total risk-weighted assets and a total capital of 14.5% of risk-weighted assets.
The Treasury said in June this year that this amount should be increased 10-fold so that banks can absorb shocks and help finance major projects while maintaining sufficient capital.
