It is Sh10bn capital base or close for banks as Ruto assents to Bill

Central Bank governor Kamau Thugge at his office on April 12 /VICTOR IMBOTO

Commercial Banks in Kenya are now expected to have a minimum core capital of Sh10 billion by 2029 or risk a maximum fine of Sh20 million or three times the financial gain from the breach.

This is after President William Ruto signed into law the Business Laws (Amendment) Bill that amended various laws including the Banking Act, Cap 488; Central Bank of Kenya Act, Cap 491 and Microfinance Act, Cap 493C. Other laws affected include the Standards Act, Cap 496; Kenya Accreditation Service Act, Cap 496A; Scrap Metal Act, Cap 503; Kenya Industrial Research and Development Institute Act, Cap 511; Special Economic Zones Act, Cap 517A; and the National Electronic Single Window System Act, Cap 485D.

Ruto said new law will lead to mergers, create stronger financial institutions and enhance regional influence.

 Similar sentiments were shared by the Central Bank Governor Kamau Thugge last week.

 “These amendments shall promote financial stability and protect depositors from systemic risks by ensuring banks adhere to adequate core capital requirements,’’ Ruto said.

This is the second attempt in a decade to increase the capital requirement after a similar proposal in 2015 to raise the minimum threshold to Sh5 billion was rejected by Parliament. Kenya’s Sh1 billion minimum requirement, in place since 2012, trails standards set by other African countries.

South Africa mandates Sh11.5 billion, Nigeria Sh43 billion, and Egypt Sh13.4 billion.

Uganda recently increased its requirement to Sh5.1 billion, forcing downgrades for several banks, including Kenya’s ABC Capital Bank.

The banking sector’s total core capital stood at Sh809 billion at the close of last year, against total assets of Sh6.5 trillion.

The directive is likely to pile pressure on small lenders in the country including National Bank of Kenya, Spire Bank (now under Equity Bank), Consolidated Bank, Premier Bank (formerly First Community Bank), and Access Bank Kenya, which fell short of the current threshold among 39 banks in the country.

Currently, banks must also maintain a core capital-to-risk-weighted assets ratio of 10.5 per cent and a total capital-to-risk-weighted assets ratio of 14.5 per cent.

Last week, the National Assembly’s Finance and National Planning Committee led by Kimani Kuria agreed to the Kenya Bankers’ Association’s proposal to stagger increase of Sh1 billion every year over the next eight years.

The bankers’ lobby said even though the policy aims to ensure stability, the unintended short-term consequences and impacts on small banks, credit accessibility, operational priorities and sector-wide adjustments might be disruptive.

Besides, the Bill amends the Central Bank Act, Cap. 491 to replace “digital lenders” with “non-deposit-taking credit providers, effectively placing them under CBK watch.

Additionally, the Bill modernises and codifies new financial mechanisms, such as peer-to-peer lending frameworks and “buy now, pay later” agreements to guarantee consumer protection.

He said this is expected to promote transparency and accountability, improving public confidence and enhancing consumer protection.

 The new law also amends the Microfinance Act, Cap to require non-deposit-taking microfinance institutions to operate with ethics and transparency by mandating them to follow explicit reporting and governance procedures.

The amendments introduce important consumer protection provisions that obligate non-deposit-taking microfinance institutions to, among other things, disclose credit conditions in a clear and accurate manner and ensure debt collection is carried out within legally acceptable bounds.

The new law also amends the Standards Act, Cap 496 to empower the Kenya Bureau of Standards to establish laboratories to provide testing and measurement services and calibration services and to appoint inspection bodies to undertake preexport verification of the conformity of goods to Kenyan standards.

 Furthermore, the newly signed law amends the Kenya Accreditation Service Act, Cap 496A to provide for mandatory accreditation of conformity assessment bodies by the Kenya Accreditation Service.

The new law also empowers the cabinet secretary to set the minimum amount to be invested in a special economic zone and to provide for a one-stop shop where enterprises can channel all their applications, for ease of doing business.

The Bill also amends the National Electronic Single Window System Act to levy nominal fees for services rendered by the Kenya Trade Network Agency