NCBA Group CEO John Gachora is calling for higher capital requirements to boost mergers and acquisitions in the banking industry. According to Mr. Gachora, higher safety buffers would drive more takeovers in Kenya, improving competition among players.
Gachora recommends raising minimum core capital base to KSh 10billion, from the current KSh 1billion.
“Raising minimum capital requirements as much as tenfold to 10 billion shillings will force marriages between lenders too afraid of the risks that come with mergers and acquisitions”, Bloomberg quoted John Gachora.
Kenya has over forty commercial banks servicing the 47 million population. Nevertheless, nine banks account for 85% of the sector’s pre-tax profit.
“With over 40 commercial banks servicing 47 million people, there should be no more than 15 institutions, including specialized banks, he said.
Higher regulatory capital needs would encourage takeovers, forming institutions that compete on scale, coverage, and pricing as opposed to margins.
In 2016, legislators desisted from the call to raise core capital base for lenders, noting that such changes might slow lending as well as oppress small banks. However, a KBA working paper indicates that increasing capital base favors competitiveness, in a favorable macroeconomic environment.
“The benefits of increasing capital requirements on competitiveness are realized once consolidation starts to take place…” notes the research paper.