(Nairobi) – A proposal by the Central Bank of Kenya to increase banks’ core capital requirements could result in the closure of 24 banks, putting 7,000 jobs at risk and impacting the economy.
The Central Bank of Kenya (CBK) has proposed a significant increase in the core capital requirements for banks, raising the threshold from KSh 1 billion to KSh 10 billion over the next three years. This move has sparked concerns from the Kenya Bankers Association (KBA), which warns that the change could negatively affect the banking sector, the economy, and employment in the country.
According to the KBA, 24 banks with core capital below the new KSh 10 billion requirement would need a combined KSh 150 billion to meet the new threshold. These banks are critical to the economy, as they provide loans, contribute to economic growth, create jobs, and generate tax revenue. However, the KBA has cautioned that the proposed increase could lead to reduced loan availability, higher interest rates, slower economic growth, job losses, and a decline in government tax revenue.
Raymond Molenje, the acting CEO of KBA, highlighted the importance of these banks in supporting economic development and urged the government to consider the negative effects of such a drastic change on smaller financial institutions.
In response to these concerns, the Central Bank of Kenya has yet to comment on whether they will reconsider the proposal. However, CBK’s governor, Kamau Thugge, has previously stated that the regulator’s aim is to ensure the stability and strength of the banking sector.
The KBA’s warning comes at a time when the sector is already under pressure from ongoing economic challenges. Despite this, the KBA has assured the public that the banking sector remains stable, with banks continuing to offer services without any immediate concerns over liquidity or solvency.
On November 13, 2024, the CBK dismissed reports suggesting capital and liquidity problems in the banking sector as false, saying such rumors were meant to create instability. The KBA also supported CBK’s statement, emphasizing the strength of the sector.
Meanwhile, the government has made efforts to reduce the cost of borrowing in recent months, with CBK lowering the base lending rate from 12.75% to 12% in October 2024. Commercial banks, including Premier Bank, Access Bank, and Diamond Trust Bank, have been adjusting their lending rates to align with the new base rate, offering some of the lowest rates available.