CBK predicts major mergers in banking sector

Published on 04/06/2009

By James Anyanzwa

Central Bank of Kenya (CBK) has predicted major re-alignments in the financial sector as the Sh1billion capitalisation rule takes effect in 2012.

The banking regulator says it expects to see mergers, direct capital injections and strategic investors coming on board to help prop up the institutions’ core capital bases to Sh1 billion.

The revelations comes barely six months after President Kibaki assented to the Finance Act on December 15, last year, which sought to increase the minimum capital requirements for banks and mortgage finance institutions from Sh250 million over four years.

The amendments to the Banking Act came into force on January 1. Central Bank says some banks with less than Sh1 billion capital have drawn up strategic plans outlining how to fix up their balance sheets .

Boost confidence

“We will see mergers, direct injection of capital and strategic partners,” says Ms Rose Detho, CBK’s director in-charge of bank supervision.

The requirements are meant to boost confidence in the banking sector after 37 banks collapsed between 1984 to 1998. CBK contends the new threshold is still too low for an industry that handles billions of shillings of deposits.

“Bringing even the minimum capital to Sh1 billion is insignificant because most banks are above this level,” Detho told a Eurofinance conference in Nairobi last week.

In the 2008/09 budget, the then Finance Minister Amos Kimunya proposed an amendment to the Banking Act to raise the minimum capital for banks.

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