Lenders have rejected the recently published draft prudential guidelines on domestic systemically important banks, arguing the rules by the Central Bank of Kenya (CBK) have the wrong timing as the industry simultaneously moves towards a higher Sh10 billion minimum core capital requirement.
The Kenya Bankers Association (KBA), the banking sector lobby, has expressed concerns over reduced lending by the industry as both large and small banks build up capital buffers to meet new CBK rules.
The lobby instead proposes that the guidelines be implemented after the industry’s transition to the Sh10 billion minimum core capital threshold is complete.
KBA sees larger banks as pivotal in not only supporting smaller banks to improve their capitalisation but also in anchoring the continued recovery of private sector credit growth, especially in a scenario where smaller banks slow down lending to meet the higher capital requirement.
“I think it’s too early to have this conversation as banks are currently expected to raise their core capital bases, a matter yet to be fully implemented. This poses a challenge because we need tier one banks to have enough capital to be able to support and come to the aid of smaller banks if required as we saw a few years back when Co-operative Bank of Kenya took over Jamii Bora Bank,” said Raimond Molenje, KBA chief executive officer.
“For me, the timing is not appropriate as it will create more shocks in the market, creating constraints.”
The CBK last week published draft guidelines pushing for enhanced capital in big banks –based on various criteria including complexity and risks in their business— with the goal of making the lenders resilient to unexpected financial losses. The big banks face reduced headroom of paying hefty dividends to shareholders.
The new proposals require lenders like Equity, KCB and Co-op Bank to hold larger buffers to prevent them from falling into trouble and disrupting the economy or requiring a taxpayer-funded bailout.
Under the proposed rules, for instance, banks with a core capital of less than 8.625 percent of their loan book will be barred from paying any dividend to their shareholders.
The CBK wants banks to maintain significant levels of common equity tier I capital (CET1) –made up primarily of retained earnings— in relation to risk-taking through lending before they can pay dividends.
The fresh guidelines are to be implemented alongside the Sh10 billion minimum core capital requirement.
Last year, the Business Laws Amendment Act, 2025, made changes to the CBK Act, requiring that all commercial banks achieve a minimum core capital of Sh10 billion from Sh1 billion, with a phased-out transition period, up to December 2029.
National Treasury Cabinet Secretary John Mbadi, however, later announced additional amendments during this year’s budget statement, removing the phased transition and pushing out the deadline for the Sh10 billion core capital to December 2032.
The changes in the budget pronouncement are yet to be implemented in law. The revision of the Sh10 billion core capital rule was attributed to concerns by commercial banks who feared that lending to businesses and households could collapse if smaller banks slowed lending to raise their capital levels. KBA fears that the risk is now exacerbated if larger banks join smaller peers in raising capital buffers simultaneously.
