, NAIROBI, Kenya, Nov 18 – Economic Experts see the Central Bank of Kenya (CBK) decision to suspend licensing of new commercial banks until further notice as a strategy to force consolidation.
Riyadh Bank Senior Vice President, financial risk management Mohamed Wehliye told Capital FM Business that raising minimum capital requirements or freezing new licenses are both governments induced rather than market driven consolidation strategies.
“It looks like this CBK position is contradicting their earlier position when they opposed minimum bank capital requirements being raised to Sh5 billion,” opined Wehliye.
He says the move could also be a strategy to pause and do audit in the banking industry adding that CBK could be thinking that there are banks out there which will not pass the test and which potential new bank owners can look at.
CBK Governor Patrick Njoroge opposed the Treasury proposal to raise banks’ core capital to Sh5 billion within the next three years, saying this will increase the dominance of the big players and lead to consolidation of the smaller banks.
Njoroge said although having more capital would strengthen the banking institutions and enable them to take up more projects, other crucial factors needed to be taken seriously so as to minimise the risk to the general public.
He called for a stay to implementation of the proposal by National Treasury CS Henry Rotich to allow further consultations with stakeholders.
On its part, Standard Investment Bank Research says the move is aimed at supporting smaller banks recapitalize and find much more capable shareholders from parties interested in getting into Kenya’s banking sector.
This research bank says is expected to strengthen the overall banking sector in Kenya.
In its Monetary Policy Committee statement on November 18, 2015, the MPC noted that although the banking sector was liquid and well capitalized, credit and liquidity risks – largely from market segmentation -remained.
The statement added that CBK was closely monitoring the sector and continued to address and support financial stability.
In particular, it noted the recent reduction in short-term interest rates which it expected to be transmitted to commercial lending rates.