Struggling commercial banks have been given a three-year deadline extension to raise their core capital to a minimum Sh10 billion, offering reprieve to 23 small lenders that are below the set mark.
National Treasury Cabinet Secretary (CS) of John Mbadi extended the deadline for banks to increase their minimum core capital from the current Sh3 billion to Sh10 billion from 2029 to 2032.
Mr Mbadi also cancelled the phased capital increase which had set annual targets for lenders to achieve each year for the next four years.
The declaration by the National Treasury comes a day after the Central Bank Kenya (CBK) declared the deadlines were not being extended.
Core capital refers to shareholders’ direct investment in the bank with CBK calling for its increase to ensure stability in the sensitive financial sector.
Banks that did not keep up with the capital raising were facing the risk of being downgraded to microfinance institutions by the regulator till they are able to meet the minimum thresholds.
“I will be proposing amendments to the timelines specified in the Business Laws (Amendment) Act 2024 to allow commercial banks raise the minimum core capital to Sh10 billion by December 31, 2032 without the annual milestones,” said CS Mbadi during the budget statement on Thursday.
“This will provide the flexibility necessary for institutions to pursue measured, commercially sound, and market-sensitive capital-raising strategies in a manner that preserves shareholder value and sustains investor confidence,” he added.
The capital raising requirement kicked off last year with a minimum core capital target of Sh3 billion from Sh1 billion previously. At the start of last year, 24 banks were below the Sh10 billion mark with 12 lenders having less than Sh3 billion.
Four banks –Access Bank, Consolidated Bank of Kenya, Credit Bank and Development Bank of Kenya– were unable to meet the Sh3 billion threshold, while eight involved in various capital raising activities including rights issues and capital injection from international parent owners.
“We are engaging all banks below Sh5 billion to see how they are going to meet that capital requirement,” said Central Bank Governor Kamau Thugge on Wednesday.
As per the phased capital increase banks were required to further increase their minimum capital position to Sh5 billion by end of this year before further increase to Sh6 billion next year, Sh8 billion by the end of 2028 and Sh10 billion by end of 2029.
The push was expected to force owners of commercial banks to consider mergers so as to form bigger and more stable institutions.
Last year, Paramount Bank, one of the banks that had a core capital below Sh10 billion was bought by Nigeria’s Zenith Bank.
