The Central Bank of Kenya (CBK) has penalized United Bank for Africa (UBA) Kenya for failing to meet critical capital adequacy standards. The CBK highlighted that UBA Kenya’s core capital-to-deposit ratio dipped below the regulatory threshold of 8% following continued financial losses, raising concerns over the bank’s stability.
According to CBK, UBA Kenya’s core capital-to-deposit ratio fell significantly from 29.46% in 2022 to 7.92% in 2023. Despite narrowing its pre-tax losses from $3.3 million (KES437 million) to $2.6 million (KES344 million) during the year, the bank still failed to maintain the minimum ratio set by the regulator. This violation places UBA Kenya among a list of 12 Kenyan commercial banks flagged by the CBK for breaching various prudential guidelines.
The central bank mandates that financial institutions adhere to a 10.5% core capital-to-risk-weighted assets ratio, a 14.5% total capital-to-risk-weighted assets ratio, and a minimum of 8% core capital-to-deposit ratio. These regulations are designed to ensure that banks are sufficiently capitalized to manage financial risks and sustain stability in the sector.
“Twelve commercial banks were in violation of the Banking Act and CBK Prudential Guidelines as of December 31, 2023, compared to thirteen banks as of December 31, 2022,” the CBK noted in its recent banking sector report. The report identified currency depreciation and shrinking core capital as primary factors contributing to these regulatory breaches. Some banks have struggled with declining core capital and rising losses, worsened by the depreciation of the Kenyan Shilling against the US Dollar.
UBA Kenya is joined by other financial institutions, such as Housing Finance and Development Bank of Kenya, in breaching core capital regulations. Additionally, Spire Bank, which was acquired by Equity Group in 2023, and Consolidated Bank failed to meet the core capital requirement of $7.7 million (KES1 billion), and both fell short of the 10.5% core capital-to-risk-weighted assets ratio.
The CBK has previously expressed concerns regarding the resilience of Kenya’s banking sector in the face of mounting economic pressures. In a bid to bolster financial stability, the CBK announced plans in June to increase the minimum capital requirement for commercial banks from the current $7.7 million (KES1 billion) to $77.8 million (KES10 billion). This move is intended to strengthen banks against economic shocks, such as cyber threats and market fluctuations, though it may pose challenges for smaller financial institutions in meeting the new requirements.
The recent breaches and impending increase in capital requirements highlight the need for enhanced regulatory compliance within Kenya’s banking industry.
