Ruto’s Kes3.9Trillion Budget 2024-2025: Why Kenya’s Central Bank is raising the minimum core capital for banks to Ksh 10Billion

By Steve UMIDHA

Kenya’s Central Bank or the CBK will progressively increase the minimum core capital for banks from the current Ksh 1.0 billion to Ksh 10.0 billion and will engage the market for an appropriate time table to achieve this goal.

According to Treasury CS Njuguna Ndun’gu who formally confirmed those plans today, said that, the move was intended to strengthen the resilience and increase the bank’s capacity to finance large scale projects while creating sufficient capital buffer to absorb and withstand shocks posed by the continuous emerging risks associated with adoption of technology and innovations as institutions expand.

“And second, CBK plans to amend the Banking Act to provide for stiff dissuasive penalties that are proportionate to the violations committed, support a strong compliance culture in banks, and align to international best practices.”

The central bank was concerned about rising non-performing loans in the banking sector, which increased to 15.5% of total loans in February this year, from 14.8% at the end of last year, he said.

The proposal to raise the capital first came into the limelight nearly two months ago.

Kenya requires a minimum capital of 1 billion shillings ($7.69 million) for those who wish to start a bank.

Banks that are already operating are required to maintain 10.5% core capital to total risk-weighted assets, and 14.5% total capital to risk-weighted assets.

Kenya’s banking sector remained stable and resilient and continues to play its role of mobilizing funds and channeling them to the deserving productive economic activities. The banking sector remained profitable with a growth in assets of in February 2023 to Ksh 7.74 trillion in February 2024.

Credit from commercial banks to the private from Ksh 7.72 trillion sector stood at an annual growth rate of 6.9 April 2024 and benefited key sectors of the economy. The Financial Inclusion Fund, popularly known as the Hustler Fund, and the de-risking of lending to the MSMEs through the Credit Guarantee Scheme have facilitated additional lending to the MSMEs sector.

Moves such as the licensing and oversight of Digital Credit Providers to address inherent challenges including high cost of credit, unethical debt collection, inadequate disclosure and lack of transparency, breach of data privacy, and abuse of personal information.

As at the end of March 2024, 51 Digital Credit Providers had been licensed.

“Secondly, on climate change, CBK in April 2024, issued the draft Kenya Green Finance Taxonomy for public participation that will serve as a tool to classify whether particular economic activities are ‘green’ or environmentally sustainable and serve as a guide for banking sector and other market participants in making informed investment or financing decisions.

“To eliminate money laundering vulnerability in the banking sector, CBK has revised its Anti-Money Laundering, and Combating the Financing of Terrorism and Proliferation Financing supervisory framework through implementation of risk-based supervision, undertaking institutional and sectoral risk assessments, and enhancing staff complement and capacity for supervision,” noted the Treasury CS.