Varying licensing fee regimes leave investors unsure of banking costs

Zawya

25-03-2025

Banking investors in East Africa are still subjected to a varying licensing fee regime, with greater implications on the cost of banking services despite efforts by regional monetary authorities to harmonise banking laws and regulations, to bolster the implementation of the single currency regime, the third pillar of regional integration after the common market and the customs union.
Data by the regional Central banks show investors seeking to set up banking operations in the region are still paying different licensing fees despite efforts to promote the region as a single investment destination in line with the broader East African integration agenda.
Kenya which prides to offer investors the least cost licensing regime for banks in the region has announced a plan to raise the fees over a three-year period, setting stage for increased cost of banking services as lenders pass on the extra charges to the consume of financial goods and services.'The Central Bank of Kenya (CBK) proposes to adopt gross annual revenue (GAR) methodology at a rate of one percent prorated over a period of three years. The progressive review of licence fees over three years is expected to moderate the potential adverse and significant impact on profitability and viability of banks,' says CBK.
CBK proposes the upward review of licence fees for commercial banks to be done progressively over a period of three years to ensure that the banks are able to transition smoothly into the new licensing fee framework.
CBK is forecasting the profitability of Kenyan banks to fall by an estimated 1.8 percent in the first year (2025), 2.4 percent in the second year (2026) and 3.1 percent in the third year (2027), with Central bank generating Ksh4.5 billion ($34.88 million), Ksh6 billion ($46.51 million) and Ksh7.5 billion ($58.13 million) from the new fees respectively.
During the first year of implementation, CBK proposes to apply a rate of 0.6 percent, second year, a rate of 0.8 percent and ultimately in the third year at a rate of 1 percent.
Kenya Bankers Association (KBA), the banks' lobby group says the proposed increase in the licensing fee will increase the banks operating costs prompting lenders to pass it to consumers.
Read: CBK gives digital credit providers six months to apply for licencesThe latest disclosure by Kenya's Central bank over the proposed licensing fee hike for commercial banks comes after the Bank of Uganda(BoU) took a similar measure in the year 2022, increasing the licensing fee for a new commercial bank from Ush2 million ($542.81) to Ush50 million ($13,570.5) , that of a new credit institution from Ush2 million ($542.81) to Ush30 million ($8,142.27) and that of a new micro-deposit taking institution from Ush2 million ($542.81) to Ush20 million ($5,428.18).
Uganda's existing commercial banks, credit institutions and micro-deposit taking institutions were required to pay 0.05 percent of their gross annual revenue when seeking a renewal of their licences.
A central bank study that sampled four countries in the East African region reveals that Uganda is the most expensive destination in terms of bank licensing fees followed by Tanzania, Rwanda and Kenya being the least cost.
CBK's 'Consultative paper on the review of commercial banks licence fees in Kenya' published this month (March) shows that the Bank of Uganda (BoU) charges lenders ( in Kenya shillings equivalent) a minimum of Ksh2 million ($15,503.87) in licence fee based on the 0.05 percent of the gross annual revenue of the bank while the Bank of Tanzania (BoT) charges a standard set fee of Ksh600,000 ($4,651.16).
The National Bank of Rwanda (NBR) charges an estimated Ksh628, 350 ($4,870.93) in licence fees for commercial banks, also based on 0.5 percent of gross annual revenue of the bank.
Kenya is the least cost destination for banking business with the minimum licensing fee based on of between Ksh100,000 ($775.19) to Ksh400,000 ($3,100.77) using the branch-based methodology.'A review and analysis of licence fees charged by selected regional and international regulators indicate that Kenya's license fees are lower. In East Africa, Kenya's licence fees are the least compared to Uganda, Rwanda, and Tanzania,' according to the CBK study.
Read: Uganda taxes, high cost of business keep investors at bayAccording to Tanzania's Banking and Financial Institutions (Licensing) Regulations 2014, an applicant for a banking licence must pay a non-refundable application fee of Tsh10 million ($3,776.23) or any other amount as may be determined by the regulator.
Across the continent Ghana and Nigeria charge standard set fees of Ksh1.3 million ($10,077.51) and Ksh953, 667($7,392.76) respectively, according to the CBK study.
Globally Malaysia and Canada charge standard set fee of Ksh4.8 million ($37,209.3) and Ksh4 million ($31,007.75) in banking licences respectively.
Singapore charges a fee of between Ksh1.5 million ($11,627.9) and Ksh1.875 million ($14,534.88) based on a branch-based methodology.
Kenya and Singapore use a branch-based methodology to determine the applicable annual licence fees payable by each commercial bank where a variable model is used while Zambia uses the Proportion of Deposits methodology.
Uganda and Rwanda used the Gross Annual Revenue (GAR) methodology where a predetermined rate is used to levy licence fees on total revenue generated by a bank, including both funded income from lending activities and non-funded income from fees and commissions, dividend income, and interest income from other investments.
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