NAIROBI, Kenya – The Central Bank of Kenya (CBK) has flagged seven commercial banks for failing to meet the minimum Sh3 billion core capital requirement, exposing gaps in their capital positions.
In its latest Bank Supervision Annual Report, the regulator said the lenders were in breach of Section 7(1) of the Banking Act, which requires commercial banks to maintain minimum core capital of Sh3 billion.
“Seven commercial banks were in violation of Section 7(1) of the Banking Act due to failure to maintain the minimum core capital required of Sh.3 billion,” CBK said.
Banks face higher capital requirements
The Sh3 billion threshold represents an increase from the previous minimum core capital requirement of Sh1 billion.
CBK is progressively raising the capital requirement as part of reforms aimed at strengthening the resilience of Kenya’s banking sector.
The regulator’s longer-term target is to raise the minimum core capital requirement to Sh10 billion, with implementation expected to take place in phases.
The higher requirements are intended to ensure banks have sufficient capital to absorb losses and remain financially stable.
Five banks breach capital adequacy rules
CBK also reported that five commercial banks were in violation of Section 18 of the Banking Act and the CBK Prudential Guideline on Capital Adequacy.
The regulator said four banks failed to meet the minimum core capital-to-total risk-weighted assets ratio of 10.5 per cent.
Three banks also failed to meet the required core capital-to-total deposits ratio of eight per cent.
The violations highlight separate aspects of capital adequacy that banks are required to maintain beyond the minimum absolute core-capital threshold.
What the capital rules mean
Core capital represents the highest-quality form of a bank’s financial capital and provides a buffer against losses.
Risk-weighted capital ratios, meanwhile, measure whether a bank has enough capital relative to the risks associated with its assets.
The core capital-to-deposits ratio provides another measure of a bank’s capital position relative to the deposits it holds.
Failure to meet these requirements can trigger regulatory intervention as the CBK works to protect depositors and maintain stability in the financial system.
