Kenya Increases Minimum Bank Capital Tenfold to Align with Regional Peers

The Central Bank of Kenya (CBK) will significantly raise the minimum capital requirement for commercial banks, increasing it tenfold to $77.8 million (KES 10 billion), as announced by Kenya’s Finance Minister, Njuguna Ndung’u, on Thursday.

This substantial increase aims to enhance the resilience of Kenya’s banking sector against financial risks, including rising cyber fraud threats and economic shocks. However, this move may present challenges for over half of the 39 licensed commercial banks in Kenya, particularly small and mid-sized banks. These institutions might need to consider mergers or raising capital from stock markets to meet the new requirements.

“The CBK intends to progressively increase the minimum core capital for banks from the current KES 1.0 billion ($7.7 million) to KES 10.0 billion ($77.8 million). The CBK will engage the market to determine an appropriate timetable for achieving this goal. This initiative is designed to strengthen resilience and enhance the banks’ capacity to finance large-scale projects while ensuring a sufficient capital buffer,” stated Ndung’u during the annual budget speech in parliament.

This marks the second attempt in a decade by Kenya to revise the minimum capital threshold for lenders. A similar proposal in 2015, which sought to raise the capital requirement to $38.9 million (KES 5 billion), was rejected by parliament.

Currently, CBK mandates that lenders maintain a core capital to risk-weighted assets ratio of at least 10.5%, a total capital to risk-weighted assets ratio of 14.5%, and a core capital to deposits ratio of 8%. Notably, the state-owned Consolidated Bank is the only lender that does not meet the existing threshold.

The existing KES 1 billion requirement has been in effect since 2012, lagging behind the capital adequacy standards of other major African banking markets. For example, South Africa’s requirement is $90 million, Nigeria’s is $337.1 million, and Egypt’s is $104.7 million.

In comparison, neighboring Uganda recently increased its minimum capital requirement to $40 million (UGX 150 billion), leading to the downgrading of some banks, including Nigeria’s GTBank, Kenya’s ABC Capital Bank, and Opportunity Bank. Meanwhile, Tanzania last reviewed its core capital requirements in 2013 and is contemplating further adjustments.