The Central Bank of Kenya (CBK) has imposed a fine on UBA Kenya for failing to meet the country’s capital adequacy standards, citing the lender’s non-compliance with the required 8% core capital-to-deposit ratio. This breach, attributed to ongoing financial losses, makes UBA one of 12 commercial banks penalized by the CBK for similar regulatory violations.
UBA Kenya’s core capital-to-deposit ratio dropped significantly from 29.46% in 2022 to 7.92% in 2023, despite a reduction in its losses. The bank recorded a pre-tax loss of approximately $2.6 million (KES344 million), down from $3.3 million (KES437 million) the previous year.
UBA is joined by Housing Finance, a mortgage lender, and the Development Bank of Kenya, a state-owned entity, among others that failed to meet the CBK’s strict capital requirements. Kenyan banks are mandated to maintain a 10.5% core capital-to-risk-weighted assets ratio, a 14.5% total capital-to-risk-weighted assets ratio, and an 8% core capital-to-deposit ratio.
In its latest banking sector report, the CBK stated, “Twelve commercial banks were in violation of the Banking Act and CBK Prudential Guidelines as of December 31, 2023, a slight decrease from thirteen banks the previous year.” The CBK noted that most of the violations were due to exchange rate fluctuations, which saw the Kenya Shilling weaken against the US Dollar, and declines in core capital for some banks that are still reporting losses.
Other banks under scrutiny include Spire Bank, which was acquired by Equity Group in 2023, and Consolidated Bank. Both institutions fell short of meeting the minimum core capital requirement of $7.7 million (KES1 billion) and the 10.5% core capital-to-risk-weighted assets ratio.
These breaches highlight challenges within Kenya’s banking sector as the CBK prepares to raise the minimum capital requirement for commercial banks to $77.8 million (KES10 billion). The planned hike, announced in June, aims to strengthen the resilience of financial institutions amid rising cyber risks and economic volatility but may pose a challenge for smaller banks to meet.
