The Kenya Bankers Association (KBA) has raised serious concerns about the impact of a proposed increase in the minimum core capital requirement for banks, warning that 24 small and medium-sized financial institutions could face closure if the new rules are enforced.

Under the Business Laws (Amendment) Bill, 2024, which was presented to Parliament on Wednesday, the minimum core capital requirement for banks is set to increase from Sh1 billion to Sh10 billion within three years.

This drastic change, according to KBA, could lead to the loss of 6,779 jobs across the banking sector.

Core capital, which represents the funds invested by a bank’s owners, ensures financial stability and solvency.

The Bill proposes that banks raise an additional Sh9 billion in capital to meet the new requirement by the deadline, a challenge that many may not be able to overcome.

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KBA’s Acting CEO, Raimond Molenje, outlined the gravity of the situation, telling lawmakers that the 24 affected banks would collectively need to raise Sh150 billion to comply with the new rule.

“Members were proposing to the increase of Sh1 billion every year over the next 8 years and not 3 years as proposed. The proposed timeline may lead to a run on 24 making them unattractive to strategic partners,” Molenje explained.

He further noted that such a rapid change could force mergers, acquisitions, or even closures.

“The affected institutions may struggle to meet the new core capital requirements, potentially leading to forced acquisitions, mergers or closures,” he added.

In addition, KBA raised concerns about the proposed penalties under the Banking Act, which would impose a Sh20 million fine on Credit Reference Bureaus (CRBs) for non-compliance and an individual fine of Sh1 million.

The Association argued that these penalties could result in higher costs for obtaining CRB reports and called for standardised penalties across financial institutions to ensure fairness.

KBA also requested that Parliament delay amendments concerning foreign direct investment management under the Banking Act until a comprehensive plan is developed.

The Association’s concerns underscore the potential risks to the stability of Kenya’s banking sector, with the proposed changes expected to have far-reaching consequences if implemented without careful consideration.