NAIROBI: A proposal put forth by Kenya’s finance ministry to raise the minimum core capital for banks to KES5bn ($48.17m) in the next three years has been overturned by the national assembly.
Budget committee head Mutava Musyimi told Reuters that the proposal by Finance Minister Henry Rotich made in June’s budget speech was declined as it may stifle the sector’s growth.
“If you raise the core capital requirement you are really saying those without deep pockets have no chance of joining the banking sector.” The hike in minimum tier one capital is also expected to boost the ability of banks to finance huge projects.
According to analysts, the latest move could have compelled mergers and acquisitions as smaller banks are looking for partners to survive in the market. The consolidation could make the lenders stronger and better capitalized and help back more investment, Rotich argued.
New central bank Governor Patrick Njoroge said that the proposal would lock out smaller lenders which provide niche services and products and finally declined the proposal in comments to lawmakers.
Further Njoroge said that consolidation may not bring down commercial lending rates. The affected lenders including K-Rep, Habib, Oriental, UBA Kenya, Victoria and Equatorial commercial banks and are all private institutions.
If the proposal is approved, the banks have to either make shareholders’ cash calls, merge or sell equity stakes in accordance with the law. With 43 commercial banks ranging in size from Barclays and Equity Bank in the top league, Kenya also has smaller homegrown lenders such as Jamii Bora Bank.
