Parliament rejects bid to raise bank capital

National assembly has rejected a proposal by the finance ministry to increase the minimum core capital for banks to Sh5 billion, saying it would stifle the sector’s growth, the head of parliament’s budget committee said.

In his budget speech in June, Finance Minister Henry Rotich proposed increasing the minimum core capital requirement for banks progressively from Sh1 billion to Sh5 billion shillings by December 2018.

“If you raise the core capital requirement you are really saying those without deep pockets have no chance of joining the banking sector,” budget committee head Mutava Musyimi told Reuters on Friday.

The decision by the committee on Thursday is final. Analysts said the move could have forced mergers and acquisitions as smaller banks sought partners to survive.

Kenya has 43 commercial banks ranging in size from Barclay s and Equity Bank in the top league and smaller homegrown lenders like Jamii Bora Bank. Rotich argued that consolidation would lead to stronger, better capitalised lenders to support more investment. But the new central bank governor, Patrick Njoroge, rejected the proposal in comments to lawmakers this month, saying it would lock out smaller lenders which offer niche services and products.

Njoroge also said there was no evidence that consolidation would drive commercial lending rates lower, which he has said is one of his goals as governor. Businesses often complain that high borrowing costs hurt investment.