South Africa’s banking battle moves to Kenya

Kenya’s plan to raise the minimum capital requirement for banks 10-fold by 2029 may benefit Africa’s largest lender by market value, supporting its ambitions to expand in East Africa’s biggest economy.

“We’d like to go to Kenya,” FirstRand CEO Mary Vilakazi said in an online briefing. “They have increased capital requirements significantly, and not even because of Basel III, but just because that’s what you can do when you want to drive consolidation, so hopefully we’ve got an opportunity there.”

Kenyan lenders were given until 2029 last year to gradually increase their minimum capital requirements from 1 billion shillings ($7.7 million) to 10 billion shillings.

Moody’s Ratings has lauded the new rules, saying they will encourage further consolidation in the banking sector. 

Standard Bank and Nedbank — rivals of FirstRand in their South African home market — are also positioning themselves to capitalise on the rapid economic growth reshaping many countries across the continent.

FirstRand is also seeking to scale up in Zambia and Ghana, where it has small operations, and grow its footprint in its core market of South Africa.

The latter generates as much as 80% of its profit, compared with 10% from its operations in the rest of Africa, and 10% from the UK. 

Vilakazi said she’s putting a lot of her “energy into things that are going to result in resolving the structural constraints” of South Africa that have contributed to the economy growing at less than 1% a year for more than a decade. 

Basel III

Vilakazi also added her voice to growing calls for Basel III rules that govern capital requirements for banks to be amended to be less stringent, as that would unlock more money for lending.

Last month, Standard Bank CEO Sim Tshabalala, who also heads a B20 task force on finance, also called for amendments. 

“Capital requirements have unfortunately increased pressure on banks’ balance sheets, and they do reduce the capacity we have available to lend,” Vilakazi said.

“The numbers are staggering about how much more lending capacity there could be that is going to go into capital requirements.”