Central Bank mulls paid-up capital increase to Sh50b
By John Otini, October 18, 2022Central Bank of Kenya (CBK) is targeting to increase its paid-up capital to Sh50 billion from Sh35 billion to help it weather market volatility.
The bank this year increased its capital to Sh38 billion from Sh35 billion to help it absorb losses arising from the volatile financial markets, a strong dollar and talk of an impending recession.
“The increased paid-up capital to Sh38 billion strengthens CBK’s financial position, enabling it to pursue its functions in a more volatile environment,” CBK said.
The regulator said it needs to increase its paid-up capital in the period ahead towards its authorised capital of Sh50 billion.
As a result, CBK announced that it issued dividends worth Sh4 billion to the National Treasury for the year ended June 2021/22 out of the Sh7 billion surplus.
During the financial year ended June 30, 2022, CBK recorded a net surplus of Sh76.89 billion compared to Sh36.99 billion in the financial year ended June 30, 2021.
The net surplus includes an unrealised exchange gain of Sh68.56 billion. The surplus is included as part of the General Reserve Fund (GRF).
Remitting of dividends
“The transfer (loosely known as remitting of dividends) and the capital increase followed approvals by the CBK Board,” CBK said in a press statement. I
n making its determination, the CBK board also considered CBK’s financial needs with the objective of ensuring the regulator is well-resourced to deliver on its mandate in the increasingly uncertain economic environment.
In particular, GRF resources are needed for modernising CBK’s facilities and infrastructure in keeping with its mandate.
The completion of the identified projects will play an important role in CBK’s long-term health and viability, strengthening its operations in line with its responsibilities and changes in the financial sector.
Strengthening CBK’s financial position to make it more resilient to shocks. Increasing the paid-up capital will cushion CBK against possible shocks or impairment from deficits, which could undermine its financial sustainability.
According to CBK, the best practice for central banks is that the capital buffers and surplus distribution procedures should enable the central bank to pursue its functions even in times of stress while sustaining its financial independence.
Balance sheet
Specifically, CBK will be able to better absorb losses that may arise from discharge of its functions; provide confidence that it will meet its domestic obligations; and cushion against shocks that may adversely affect its balance sheet.
The transfer was in accordance with the CBK Act, relating to the treatment of CBK’s net annual surplus, and was executed by crediting the Ministry of Finance’s Deposit Account at CBK.
The increase in paid-up capital was in accordance with CBK Act and implemented through a transfer of funds from the GRF.
– John Otini