Paramount Bank has raised Sh332 million through a rights issue, pushing its core capital above the regulatory minimum amid links to a possible takeover by a Nigerian lender.
On Monday, the lender said the amount has helped take its core capital to Sh3.118 billion as at the end of September, compared with Sh2.75 billion it held at the end of June this year.
The latest figure means that the lender is now compliant with the requirement to close the year with a minimum core capital of Sh3 billion.
‘The strengthened capital position enables us to scale up lending, enhance operational resilience, and continue providing innovative financial solutions to our customers,’ said Ayaz Merali, CEO at Paramount Bank.
The fresh capital comes amid revelation that Nigeria’s second largest bank by asset base, Zenith Bank, has sought regulatory clearance to acquire the Kenyan lender.
Paramount’s strategy reflects a similar move by Sidian Bank, which has also turned to a rights issue to secure fresh capital for long-term compliance after the minimum core capital requirement was raised from Sh1 billion and set to rise gradually to Sh10 billion by 2029.
The minimum core capital in the banking sector was, through the Business Laws (Amendment) Act 2024, revised upward from Sh1 billion to Sh3 billion by the end of December, Sh5 billion by the close of 2026, Sh6 billion by the end of 2027, Sh8 billion in 2028 and Sh10 billion by the close of 2029.
The timelines for fresh capital mean that Paramount will require close to Sh2 billion come next year if it is to remain compliant. If the Zenith deal materialises, it will relieve Paramount’s shareholders from another capital raising come next year.
The Kenyan lender is keen on expanding its digital banking and payment solutions, strengthening SMEs and trade finance support, enhancing its risk and compliance frameworks and investing in sustainable and inclusive growth initiatives.
Paramount was among the 11 lenders that were left requiring additional capital as a result of the revision of the core capital rules.
Other lenders whose core capital was below Sh3 billion by the end of June this year were M-Oriental, ABC Bank Kenya, Premier Bank, CIB International Bank, Middle East Bank Kenya and the Development Bank of Kenya, UBA Kenya Bank, Credit Bank Plc, Access Bank Kenya and Consolidated Bank of Kenya.
The 11 lenders were by the end of June this year needing to raise a combined extra Sh14.7 billion to comply with the new minimum Sh3 billion core capital.
Central Bank of Kenya (CBK) banking sector stress test – an assessment of banks’ ability to withstand economic or financial shocks while remaining stable – published in September showed the lenders had submitted their plans for shoring up capital.
The stress test showed CBK stands ready with three options including ‘downgrading such banks to microfinance banks and reinstate them upon meeting the new core capital requirements.’
Earlier this year, CBK asked 24 banks whose core capital was below the final core capital target of Sh10 billion to submit plans detailing how they intend to raise new funding to meet the new enhanced requirements.