The Central Bank of Kenya has presented a plan to increase the minimum capital requirement for banks tenfold from the current KSh 1 billion to KSh 10 billion.
25 licensed Kenyan commercial banks will have up to three years to raise the new capital requirement by CBK.
The aim is to bolster banks’ resilience and to anchor the country’s financial sector, in a bid to build stronger banks with more muscle to finance bigger projects.
Kenya last raised its core capital requirements in 2012, and an attempt to raise it (to KShs. 5bn) was shot down in Parliament in 2015.
“We have not adjusted the core capital requirements in many years, and during that time, we have had all kinds of new risks emerging such as cyber-security and climate issues. There is also competition from foreign banks coming here and becoming very aggressive. As we plan to become a financial hub, we need strong banks that can withstand new risks,” The CBK Governor Dr. Kamau Thugge said in a recent interview.
Capital broadly acts as a buffer for a bank and provides a financial safety net to protect depositors and the economy from possible bank failures. It allows a banking institution to continue operating even in periods of unforeseeable losses prolonging insolvency, ensuring the liquidity crisis is forfeit by the owners rather than the public safety net provided by the apex bank.
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