Banks get Sh79bn to comply with CBK

Shareholders of commercial banks injected Sh79.3 billion in the financial institutions in the year to August 2014 as banks rushed to comply with the Central Bank’s rules on capital requirements.

New data from the Central Bank of Kenya (CBK) shows that capital levels in the banking industry improved as shareholder funds grew by 19.8 per cent to Sh479.6 billion in August 2014 up from Sh400.3 billion in August 2013. 

The CBK issued revised guidelines on prudential capital adequacy ratios for commercial banks with a capital buffer of 2.5 per cent above the previous ratios, effective January 2014. The rules also saw the minimum capital for commercial banks raised to Sh1 billion from Sh700 million as a precautionary measure against risks like macroeconomic instability locally or internationally that may lead to the collapse of banks.  

In the last year, commercial banks have been forced to withhold a portion of their shareholder earnings, opt for cash calls or exploit the debt market to meet the new regulations on capital adequacy ratios.

Analysts have also previously indicated that banks have also had to reduce the dividend pay-out to their shareholders so as to meet the capital requirements.

In an earlier interview, Kenya Bankers Association research director, Mr Jared Osoro, told Sunday Nation that the industry’s shareholders’ support has been steadily growing over the years in tandem with strong growth exhibited in the banking industry.

Prudential guidelines the CBK released in 2013 also required banks to conduct stress tests regularly and submit results to the regulator on a quarterly basis.

This is to enable the CBK to monitor and continuously engage the banks on appropriate plans for mitigating potential risks and vulnerabilities in the market.

An analysis done by Standard Investment Bank (SIB) in July this year, indicates that the existing CBK prudential guidelines would require eight listed banks to increase their tier-one capital by a total Sh76.2 billion (the highest being Sh15.9 billion by the Kenya Commercial Bank and the least being Sh5 billion by NIC).

This new capital would be necessary if they are to deliver the same growth they have experienced in recent years under the new capital adequacy ratio rules.

The CBK has also hinted at further raising the capital requirements for Kenyan banks to be at par with those in South Africa, Egypt, Angola, and Nigeria.

The move is aimed at positioning local banks to tap into growing opportunities in ongoing big infrastructure projects and the natural resources being exploited, without facing substantial financial stress. Of the four countries cited, Angola has the least minimum capital requirement at Sh2 billion ($23 million), followed by Egypt with Sh6 billion ($68 million).

South Africa’s minimum capital is Sh9 billion ($102 million) while Nigeria’s is Sh8 billion ($91 million).