Regional banks face closer scrutiny in 2019 to stem wave of closures

Monday December 31 2018

Imperial Bank depositors protest outside the bank’s headquarters in Nairobi, in October 2016.

Imperial Bank depositors protest outside the bank’s headquarters in Nairobi, in October 2016. The Central Bank of Kenya has directed all banks to review their business models and consider consolidation to withstand shocks, after putting three financially distressed banks — Dubai, Imperial and Chase — under receivership. PHOTO | NMG 

JAMES ANYANZWA
By JAMES ANYANZWA
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East African banks face a tighter regulatory environment in 2019, with central banks moving to protect depositors in weak and undercapitalised lenders and ensure stability in the sector.

The region’s central bank governors, at a meeting in Kampala in August, reiterated their commitment to enhancing policy co-ordination to build a strong regional banking sector that can withstand external shocks and reduce bank failures.

They have been implementing regulations requiring banks to increase their core capital to withstand financial shocks amid rising non-performing loans.

These requirements are part of efforts by the East African Community partner states to implement the Basel III guidelines, which were introduced globally after the 2008 financial crisis showed banks that they need to be more resilient to credit stress.

Already, the National Bank of Rwanda is reviewing a proposal to quadruple the minimum core capital for banks to Rwf20 billion ($22.6 million), from Rwf5 billion ($5.6 million) while Uganda and Tanzania have also increased the core capital for banks in line with the region’s financial sector integration agenda.

Rwandan banks will be expected to build up their core capital to Rwf15 billion ($17.2 million) in the first three years after the publication of the regulations, then add the remaining Rwf5 billion ($5.7 million) in the next two years.

In 2007, Kenya increased the minimum core capital for banks to Ksh1 billion ($10 million) from Ksh250 million ($2.5 million), setting December 31, 2012 as the deadline.

However, an attempt by the Treasury Cabinet Secretary Henry Rotich to further increase the bank’s core capital to Ksh5 billion ($50 million) by December 31, was met with strong opposition from parliament.

Business models

The Central Bank of Kenya has directed all banks to review their business models and consider consolidation to withstand shocks, after putting three financially distressed banks — Dubai, Imperial and Chase — under receivership.

In Dar, the Bank of Tanzania shut down five lenders early in 2018 and put another one under administration for breaching capital requirements.

Bank M Tanzania Plc was put under administration after it became insolvent. Covenant Bank for Women Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’ Co-operative Bank Ltd and Meru Community Bank Ltd were shut down.

The Bank of Uganda (BoU) also put Crane Bank under receivership whereafter it was acquired by Dfcu Bank. BoU Deputy Governor Louis Kasekende says many of the problems facing the banking industry can be solved if banks pool resources and realise economies of scale, thereby reducing costs.

In Rwanda, commercial banks posted mixed results in the nine months to September 30, with almost half of the profits being generated by Bank of Kigali, which is riding on its large capital base to finance corporate clients, its countrywide presence to serve the retail segment and its technology-driven banking platform to beat competition.

The Bank of Kigali’s net profit during the period under review stood at Rwf19.7 billion ($22 million), an 11.1 per cent increase from the Rwf17.6 billion ($19.7 million) reported during the same period last year.

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