The shaky liquidity stability and asset base of lending institutions has come to the fore after the Kenya Bankers Association (KBA) warned that at least 24 banks risk total shut down if the proposed increment of core capital from Sh1billion to Sh10billion in three years’ time is actioned.
Further, KBA cautioned that the move will see nearly 7,000 employees rendered jobless.
KBA made the shocking revelations while making its presentation before the National Assembly’s Finance Committee on the Business Laws (Amendment) Bill, 2024 today.
“We should not ignore the 24 banks’ contribution to the real economic growth, employment creation and enhanced governance revenue.” Acting KBA Chief Executive Officer (CEO) Raimond Molenje said.
Specifically, KBA said if the Bill sails through, a total of 6,779 jobs in the banking sector will be rendered redundant with an additional 627 rental premises subjected to closure.
They also warned against introducing additional taxes on financial transactions, stating that the effect will reflect on interest rates charged through loans.
“The abrupt increase in core capital will disrupt these banks contribution to enhanced financial inclusion, distort deposits mobilization and limit extension of loans.” Molenje added.
However, the lenders are accused of cutting credit to the private sector particularly to MSMEs and SMEs as well as investing clients and investing in other asset classes such as lucrative government securities, for higher yields.
Other entities which participated in today’s public hearings on the Tax Amendment Laws include Westminister and LexLinks Consultancy.
KBA also expressed concerns about proposed penalties under the Banking Act, which would impose a Sh20million fine on Credit Reference Bureaus (CRBs) for non-compliance, alongside an individual fine of Sh1million.
KBA warned that such measures could increase the cost of obtaining CRB reports and called for standardised penalties across financial institutions to ensure fairness.
The Association further urged Parliament to delay amendments related to Foreign Direct Investment (FDI) management under the Banking Act until a comprehensive plan is developed.
Core capital refers to the funds invested by a bank’s owners, ensuring financial stability and solvency.
KBA emphasised that the proposed requirement would force banks to raise an additional Sh9 billion within the given timeline or face closure.
Some of the banks that have wound up over liquidity crisis and permanently went under include; Spire Bank Spire Bank owned by the the late Kenyan billionaire Nashaud Merali, Ari and Reliance Banks, Imperial Bank, Chase Bank Limited and Charterhouse Bank Limited among others.
