Rwanda gives Kenya bank subsidiaries a year to boost capital

{Rwanda has joined Sudan in requiring Kenyan banks to inject additional billions into the subsidiaries after the regulator National Bank of Rwanda (NBR) issued new minimum capital requirements.}

New guidelines by Rwanda’s financial watchdog have given the banks a year to raise capital buffers by up to 2.5 per cent of their deposits to improve their stability in times of losses and economic stress.

Introduction of the capital buffer will push the minimum ratio of core capital to total deposits up from the current eight per cent to 10.5 per cent.

The ratio of total capital to credit advances will also go up to 14.5 per cent.

The introductions will see Rwanda banking sector match the capital requirements of its Kenyan counterpart.

“The parallel running exercise aims at ensuring that banks prepare adequate data and system requirements and building capacity and skills to ensure full implementation in January 2017,” reads the directive signed by NBR, governor John Rwangombwa.

The exercise demands banks submit their financial reports in line with the new requirements from the end of last month allowing NBR to monitor compliance.

Kenyan banks operating in the country include Equity Bank, KCB, and I&M and had a total of 57 branches in the country as at end of last year. Commercial Bank of Africa has announced plans to enter the market in the first half of next year.

Banks operating subsidiaries will be required to separate the group capital position from that of the subsidiary in an effort to ensure the regional operations can remain standing even when the parent company encounters turbulence.

“The solvent status of Kenyan banks is of particular importance to the regional financial stability, as Kenyan banks have opened branches in the region,” noted Mr Rwangombwa last month in Rwanda’s financial sector stability report.

Rwanda becomes the second country in Eastern Africa, where Kenyan banks have subsidiaries, to order they increase capital requirements in as many years.

South Sudan increased paid up capital requirement for international banks this year by Sh2.15 billion for each bank.

READ: Kenyan banks face higher capital rules in South Sudan

Uganda has also indicated plans to increase its capital requirements, a move that will slow down regional expansion for small banks while tying down huge sums of cash for the Kenyan banks already in those market.

Last year NBR introduced a supervision fee requiring all banks operating in Rwanda to pay 0.5 per cent of their gross income while new entrants will be required to pay a new licence fee of Sh700,000.

SOURCE:BUSINESS DAILY:[Rwanda gives Kenya bank subsidiaries a year to boost capital->http://www.businessdailyafrica.com/Rwanda-gives-Kenya-bank-subsidiaries-a-year-to-boost-capital/-/539552/2994984/-/10vhblwz/-/index.html]