Kenya Central Bank Urges Slower Pace on Bank Consolidation

Updated on

Kenyan central bank Governor Patrick Njoroge said measures introduced by the government to stoke consolidation in the country’s banking industry may be premature.

Raising minimum core-capital requirements isn’t the appropriate step to strengthen lenders in East Africa’s biggest economy, Njoroge told lawmakers on Thursday in the capital, Nairobi. In his annual budget speech in June, Treasury Secretary Henry Rotich said minimum capital levels would increase fivefold over three years to promote competition among lenders.

“This is not how to approach it and this is not the time,” Njoroge said. “We may have rushed consolidation.”

Kenya, with a $55 billion economy, has 43 commercial banks and a mortgage-finance company, according to the Central Bank of Kenya. About 70 percent of banking business is done by eight companies. Industry fragmentation is hindering the development of more complex banking services, according to Joshua Oigara, chief executive officer of Kenya Commercial Bank Ltd., the country’s most profitable lender.

Consolidation would only create more dominant banks that were “too big to fail,” Njoroge said, adding that he preferred better supervision over having larger lenders.

The difference between the amount banks pay on deposits and what they charge for loans is widest at large banks at more than 11 percent, while the nation’s 21 small banks had spreads of about 10 percent, he said.

“At the end of the day, the central bank is quite uncomfortable with this proposal” of pushing lenders toward consolidation, said Njoroge.