A new proposal by Kenya’s parliament finance committee could extend the deadline for commercial banks to meet new capital requirements to eight years. In June 2024, Kenya’s Central Bank proposed a tenfold hike in minimum capital for banks with a three-year deadline. 

The committee said raising the minimum capital requirement from KES1 billion ($7.7 million) to KES10 billion ($77.8 million) within three years, as proposed in the Business (Amendment) Bill, 2024 would place smaller lenders under pressure.

“While it is evident that an upward adjustment is necessary to align with the current economic and financial environment, the proposed timeline of three years in the bill for banks to meet the revised minimum core capital requirements is considered too short,” the committee said.

“Extending this compliance period to eight years would provide a more practical and manageable timeframe for banks to raise the required capital, allowing them to strategise and implement measures that ensure sustainable compliance without destabilising their operations or the wider financial sector.”

In June, the Central Bank of Kenya (CBK) said the new capital requirements will boost resilience to potential financial risks, such as increased cyber fraud threats and economic shocks.

However, it could prove challenging for over half of the 39 licensed commercial banks. For these small and mid-size banks, mergers or raising capital from the stock markets are options they will consider. 

The CBK requires a minimum core capital-to-risk-weighted assets ratio of 10.5%, a total capital-to-risk-weighted assets ratio of 14.5%, and a core capital-to-deposits ratio of 8%. In June 2024, the regulator claimed that 12 commercial banks breached various capital requirements.

The banks included state-owned Consolidated Bank, UBA Kenya, Housing Finance, Spire Bank, and Development Bank of Kenya.

The KES 1 billion current requirement has been in force since 2012. This follows the capital adequacy requirement in South Africa ($90 million), Nigeria ($337.1 million), and Egypt ($104.7 million), the three biggest banking industries in Africa.The proposal in Parliament is the second attempt in a decade to review the capital threshold for lenders. A 2015 proposal to raise the requirement to $38.9 million (KES5 billion) was rejected by lawmakers.