NAIROBI (HAN) June 11.2016. Public Diplomacy & Regional Security News. By JAMES ANYANZWA. Kenya’s Treasury has returned to parliament a proposal to increase the minimum capital requirement for commercial banks to Ksh1 billion ($10 million) to Ksh5 billion ($50 million).
The proposal had been rejected by lawmakers on the grounds that it would kill competition and make it difficult for small banks to grow.
Tanzania and Uganda have already increased the minimum core capital for their banks by 200 per cent and 150 per cent respectively.
The proposal was tabled in parliament last week by Treasury Cabinet Secretary Henry Rotich during the 2016/2017 budget reading. If the proposal is approved, Kenya’s commercial banks will be required to increase their core capital to Ksh2 billion ($20 million) by December 2017, Ksh3.5 billion ($35 million) by December 2018, and finally Ksh5 billion ($50 million) by December 2019.
Tax experts said the move would protect public deposits and investments in the wake of recent bank failures.
“The measures are welcome as they protect the interests of the public. They will also contribute to investor confidence in Kenya’s financial sector, which will increase investment and economic growth,” said Gitahi Gachahi, the chief executive of Ernst &Young LLP in-charge of the East African operations.
Mr Rotich’s attempt to introduce a similar proposal during the current budget (2015/2016) was rejected by the lawmakers and the Central Bank on the grounds that the policy would lead to the closure of nascent banks and hurried consolidations, stifle competition, and empower big banks.
Mr Rotich appealed to the Members of Parliament to reconsider the proposal following the recent collapse of three privately owned banks.
“I tabled, in this House, specific measures to increase the capitalisation of banks in order to ensure we have a strong and stable banking system, but our efforts were not successful,” said Mr Rotich.
“I’m seeking to reintroduce the proposals, and I’m hopeful that members will look at them more favourably in light of the recent developments in our banking system,” he added.
If approved by parliament, the proposal is likely to lead to mergers between, and acquisitions of, financial institutions.
In 2013, the Bank of Tanzania (BoT) issued a moratorium to ensure that commercial banks and community banks fully complied with the minimum capital requirements that were gazetted in 2012 over three and five years. The deadline for compliance was 2015 for commercial banks, and 2017 for community banks.
Commercial banks were expected to increase their minimum core capital to Tsh15 billion ($6.7 million) from Tsh5 billion, and community banks to Tsh2 billion from Tsh250 million ($2.23 million).
Uganda set a March 2013 deadline for a Ush25 billion ($7.37 million) minimum capital requirement for commercial banks, up from Ush10 billion ($2.95 million).
Since last August, Kenya’s Dubai, Imperial and Chase banks have been put under statutory management by the Central Bank over financial impropriety and breach of corporate governance principles by their directors.
Last week, Kenya’s Oriental Commercial Bank was acquired by Tanzania’s Bank M, and three state-owned banks are currently facing liquidity challenges.
In 2007, Kenya proposed to raise the minimum core capital for banks to Ksh1 billion ($10 million) from Ksh250 million ($2.5 million) setting December 31, 2012 as the deadline for all banks to comply.