The Treasury and the Central Bank of Kenya (CBK) are in talks for consensus after a sharp fallout over the deadline for commercial banks to raise the minimum core capital to Sh10 billion.
Treasury Cabinet Secretary (CS) John Mbadi confirmed ongoing discussions with CBK Governor Kamau Thugge after his earlier statement extending the compliance deadline to 2032 from 2029 and scrapping the CBK’s staggered approach to meeting the capital threshold over five years.
Sources told the Business Daily that Mr Mbadi met Dr Thugge on Tuesday last week in the wake of the public fallout that saw the regulator order commercial banks to ignore the CS’ pronouncements and stick to the initial plan of raising minimum core capital to at least Sh5 billion by the end of December 2026, Sh6 billion next year, Sh8 billion in 2028 and Sh10 billion in 2029.
Mr Mbadi said the Treasury was keen on resolving the standoff with the CBK and ‘arrive at consensus on ‘what’s best for the economy’.
“We are looking at the economy, and the decision will lie on what’s best for the economy. It’s not a major issue of concern in my view.”
The fallout was sparked by a pronouncement in the 2026 Budget speech in which Mr Mbadi proposed to push the compliance deadline to 2032 and scrap the annual milestones.
The Treasury CS, however, failed to move the amendments to the Banking Act, resulting in confusion for the industry.
Mr Mbadi’s stance upset the CBK, with the regulator directing banks to stick to the initial plan of raising minimum core capital.
The regulator ordered banks with core capital of less than Sh5 billion to give written explanations on how they plan to meet the requirement before the end of this month.
“We want them to come to us and tell us how they are going to meet the target for 2026, which is Sh5 billion,” Dr Thugge told the National Assembly Finance and National Planning Committee at the end of October.
“There are one or two that might struggle, but we want to hear from them on how they are going to meet that target. That is our position which we have communicated to the National Treasury.”
The new bank capital rules were set in 2024 through the Business Laws (Amendment) Act, which lifted the industry’s core capital from a floor of Sh1 billion.
The CBK said that banks below the target of Sh5 billion in core capital this year were yet to respond to the regulator’s query on capital-raising measures amid the confusion.
The National Assembly Finance and National Planning Committee has called for a ‘balanced’ approach to implementing the new capital rules, warning of risks to financial stability, competition and financial inclusion.
“While consolidation may strengthen individual institutions, it is important to safeguard competition, local ownership and the continued participation of domestic banking institutions, particularly those serving communities and market segments that may not be adequately served by larger banks,” Kuria Kimani, the committee’s chairperson, told MPs last week.
“A balanced implementation of the capital requirements is therefore necessary, taking into account financial stability, competition, financial inclusion and the sustainability of locally owned banks.”
The Treasury had sought to extend the deadline for the new capital rules on claims of a potential slowdown in bank lending to households and businesses.
Commercial banks told Mr Mbadi that institutions short of capital targets were likely to hold back lending activities in a bid to preserve funds to meet the higher regulatory requirements.
A slowdown in lending would have upset government expectations of improved loans to the private sector to boost economic growth.
As at the end of June 2026, 14 banks, including Middle East Bank, M-Oriental Bank, Bank of Africa, Premier Bank, Guardian Bank, DIB Bank and Habib Bank AG Zurich, had core capital less than Sh5 billion.
Seven banks — Credit Bank, UBA Bank, Development Bank of Kenya (DBK), African Banking Corporation (ABC), Access Bank and Consolidated Bank of Kenya — had not met the Sh3 billion core capital target, set for the first year of transition to December 2025.
The CBK warned that banks which failed to honour the capital requirements would be downgraded, even though no action has been taken so far.
The capital-raising requirement kicked off last year with a minimum core capital target of Sh3 billion from Sh1 billion previously.
Banking industry sources said the Treasury did not consult the CBK when it made the pronouncement extending the deadline for new capital rules. The decision followed intense lobbying by small banks which had been under pressure to meet the new requirements.
As it stands, banks would be obligated to have a core capital base of Sh6 billion by December 2027 and Sh8 billion by December 2028, before hitting the final marker of Sh10 billion by December 2029.
Mbadi previously backed the new core capital rules for banks but argued the transition would have to be sustainable.
“While the government firmly upholds the strategic necessity of raising the minimum core capital, it is prudent that this transition be managed in a manner that is least disruptive to credit access and financial services delivery, particularly to micro, small and medium enterprises (MSMEs) and other niche markets currently served by the banking industry,” Mr Mbadi said in June.
“This will provide the flexibility necessary for institutions to pursue measured, commercially sound, and market-sensitive capital-raising strategies in a manner that preserves shareholder value and sustains investor confidence.”
