Small banks urged to seek deep pocketed investors to boost capital

The Central Bank of Kenya (CBK) has advocated for the merger and acquisition of small banks facing cash flow challenges in the country.

The banking regulator says the smaller banks are under pressure to meet tight CBK regulations adding that its high time shareholders address the capital inadequacies.

CBK Governor Dr Patrick Njoroge said small banks need to re look their business models in light of an evolving banking regime that may force them to shut down.

“We have already made a point. That they need to think about their business models to be more resilient. That may involve merging with another institution so as to be more resilient. I think the point here is the urgency of it is .It’s obviously much more apparent to them now. We will see what they will come up with. It’s their job. They have to do their heavy lifting now,” said Dr Njoroge.

Already a number of international banks have shown interest in the local banking sector adding the industry remains stable.

Just last week Mauritian bank SBM Holdings announced the acquisition of Fidelity Commercial Bank which was coming under financial strain.

Dr Njoroge said with the freeze on issuance of new banking licenses, struggling banks had the opportunity to engage interested investors to pump in money.

“The impact of interest rate caps has seen banks struggle implement the law and some banks had to adjust their portfolio. There has been some portfolio shifts by banks and this has led to some banks holdings on government securities and adjusted their credit positions,” he said.

The banks had cash surpluses in large cooperates and this made them make loan repayments and also lower their use of overdrafts.