The Central Bank of Kenya has confirmed that it expects bank mergers following the Parliamentary approval of a minimum core capital of Ksh10 billion for commercial banks. At the moment banks are required to have a minimum core capital of Ksh1 billion.
Speaking during a press briefing following the Monetary Policy Committee meeting on Friday, CBK Governor Kamau seemed unfazed by the fears from Kenyans that the law could lead to banks collapsing.
The law, contained in the Business Laws (Amendment) Bill, 2024, proposed by the CBK was passed by Members of Parliament on Wednesday night and awaits the signing by President William Ruto to become operational.
“We do hope there will be mergers. And in our view, having stronger banks and a stronger capital base, we will be able to withstand many of the new threats we are seeing,” asserted te governor.
A merger in banking occurs when two banks combine to form a single entity. This can involve either creating a new parent company that oversees both institutions or one bank absorbing another. In his explanation, the governor expects a merger would raise the core capital of banks, increasing their capacity to absorb shocks in the financial sector.
At this time, it remains a projection. However, if it is actualised, Kenyans can expect changes like account numbers, new debit/credit cards, or updated banking platforms. However, it may also mean access to a broader range of services and a larger branch/ATM network.
It is important to note that in some cases, customers see minimal changes apart from a bank’s rebranding.
During the public participation, it emerged that up to 24 banks could be forced out of business if plans to raise capital requirements become law.
The Kenya Bankers Association told the National Assembly Finance and National Planning Committee led by Molo MP, Kuria Kimani, that the move would affect the livelihoods of over 7,000 employees.
However, Governor Kamau has defended the move, saying it will strengthen the capital buffers of local banks and reinforce the financial sector in the country. According to the governor, raising the ceiling will further allow local banks to be competitive in the region.
Parliament added amendments to the law, which had initially set the compliance period at three years. However, the Finance Committee raised the period of compliance from three to eight years.
The proposed schedule includes a phased compliance plan, starting with a core capital of Ksh1 billion by December 31 and ending at Ksh10 billion by December 31, 2027.
In its report tabled in Parliament, the Finance Committee stated, "The committee observed that despite the exponential growth in assets, liabilities, and number of depositors and borrowers, the minimum core capital for banks has remained at Ksh1 billion.”
Kimani Kuria asserted, "The low capital base, which supports a significant asset base of the banking sector, makes banks more susceptible to failure."
