President William Ruto has enacted the Business Laws Act 2024, introducing significant changes to Kenya’s banking sector regulations. The new law mandates a 1000% increase in the minimum core capital requirement for commercial banks, raising it from KSh 1 billion to KSh 10 billion.
This marks the first adjustment to these requirements since 2012, signaling a major shift in the country’s banking regulatory landscape.
The signing of seven parliamentary Bills will accelerate the achievement of our Bottom-Up Economic Transformation Agenda. It will also enhance our country’s global competitiveness.
— William Samoei Ruto, PhD (@WilliamsRuto) December 11, 2024
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Implementation Timeline and Penalties
Banks have been granted a five-year transition period, until 2029, to comply with the new requirements. The legislation includes substantial penalties for non-compliance:
– Maximum fine of KSh 20 million
– Or three times the amount gained from violating the requirement, whichever is higher
Following advocacy from the Kenya Bankers Association (KBA), the National Assembly Finance Committee approved a graduated approach, allowing banks to increase their core capital by KSh 1 billion annually over eight years.
Industry Response and Impact
KBA CEO Raimond Molenje offered optimistic perspectives on the new regulations in an interview. He emphasized the positive aspects of the gradual implementation. He stated,
“We are also happy that the government has considered a more gradual increase in core capital for banks. This enables banks to seek strategic partners while ensuring that service delivery is not disrupted”
Regarding potential consolidation in the sector, Molenje added:
“Banks have always considered mergers and acquisitions even where there is no law compelling them to do so. This has been driven by alignments in strategies and the need to expand to new markets strategically. In this case, we do not foresee any bank closures, but rather possible consolidations cutting across the industry gradually over the next 5 years.”
Current Banking Sector Statistics
According to the Central Bank of Kenya (CBK):
– Total core capital in the sector: KSh 809 billion (2023)
– Total assets: KSh 6.5 trillion
– Only 15 out of 39 licensed commercial banks currently meet the new KSh 10 billion requirement
CBK Governor Kamau Thugge outlined additional regulatory requirements:
– Core capital-to-risk-weighted assets ratio: 10.5%
– Total capital-to-risk-weighted assets ratio: 14.5%
List of Kenyan Banks That Could Shut Down or Merge
Several major banks currently fall short of the KSh 10 billion requirement:
– National Bank of Kenya Ltd: KSh 8.2 billion
– SBM Bank Kenya Ltd: KSh 8.1 billion
– Ecobank Kenya Ltd: KSh 7.8 billion
– Victoria Commercial Bank: KSh 7.4 billion
– Gulf African Bank Ltd: KSh 6.8 billion
– Guaranty Trust Bank Ltd: KSh 5.8 billion
– Sidian Bank Ltd: KSh 4.1 billion
Below are the banks that are likely to be affected due to their low core capital (below Ksh 3 billion):
| Bank Name | Core Capital (KSh) |
|---|---|
| M-Oriental Bank Kenya Ltd | 2.6 billion |
| Credit Bank Plc | 2.5 billion |
| Paramount Bank Ltd | 2.4 billion |
| Development Bank of Kenya Ltd | 2.3 billion |
| HFC Ltd | 2.1 billion |
| UBA Kenya Bank Ltd | 2.1 billion |
| Middle East Bank (K) Ltd | 1.9 billion |
| Access Bank (Kenya) Plc | 1.5 billion |
| Consolidated Bank of Kenya Ltd | 540 million |
| Spire Bank Limited | 1.7 billion |
Recent Bank Acquisitions
The sector has already seen significant consolidation activity. In January 2023, Equity Group Limited acquired Spire Bank. In September 2024, COMESA Competition Commission approved Access Bank’s acquisition of National Bank of Kenya from KCB Group.
The CBK has indicated it will only support mergers and acquisitions within the banking sector itself, suggesting a careful approach to industry consolidation.
