The Parliament Finance Committee in Kenya has proposed extending the deadline for commercial banks to meet new capital requirements from three years to eight years. This move comes after the Central Bank of Kenya (CBK) proposed a tenfold hike in minimum capital for banks in June 2024, with a three-year deadline for implementation.

The committee expressed concerns that the initial timeline would place smaller lenders under significant pressure, potentially destabilizing their operations and the wider financial sector. "While it is evident that an upward adjustment is necessary to align with the current economic and financial environment, the proposed timeline of three years in the bill for banks to meet the revised minimum core capital requirements is considered too short," the committee stated.

The CBK's proposal aims to boost resilience to potential financial risks, such as increased cyber fraud threats and economic shocks. However, the new capital requirements could prove challenging for over half of the 39 licensed commercial banks in Kenya. Smaller banks may need to consider mergers or raising capital from the stock markets to meet the new requirements.

The CBK requires a minimum core capital-to-risk-weighted assets ratio of 10.5%, a total capital-to-risk-weighted assets ratio of 14.5%, and a core capital-to-deposits ratio of 8%. In June 2024, the regulator claimed that 12 commercial banks breached various capital requirements, including state-owned Consolidated Bank, UBA Kenya, Housing Finance, Spire Bank, and Development Bank of Kenya.

The current minimum capital requirement of KES 1 billion ($7.7 million) has been in force since 2012. In comparison, the capital adequacy requirements in South Africa, Nigeria, and Egypt, the three biggest banking industries in Africa, are $90 million, $337.1 million, and $104.7 million, respectively.

This is not the first attempt to review the capital threshold for lenders in Kenya. A 2015 proposal to raise the requirement to $38.9 million (KES 5 billion) was rejected by lawmakers. The committee's proposal is currently under consideration, and its outcome will have significant implications for the banking industry in Kenya.

The proposed extension of the deadline to eight years could provide a more practical and manageable timeframe for banks to raise the required capital, allowing them to strategize and implement measures that ensure sustainable compliance without destabilizing their operations or the wider financial sector. The committee's decision will be closely watched by industry stakeholders, as it could have far-reaching consequences for the stability and growth of Kenya's banking sector.