CBK Rejects Treasury Extension of KSh10bn Bank Capital Rule

The Central Bank of Kenya has instructed commercial banks to adhere to the original phased capital-raising timetable, dismissing the Treasury’s proposal to postpone the KSh10 billion minimum core-capital target.

Under the regulator’s directive, banks must reach at least KSh5 billion by the end of the next month, KSh6 billion in the following year, KSh8 billion in 2028 and KSh10 billion in 2029.

The Treasury, led by Cabinet Secretary John Mbadi, has advocated a single deadline of December 2032 and the removal of the staggered schedule, a move that would relieve fourteen banks from having to raise roughly KSh33 billion by the end of that year.

CBK Governor Dr Kamau Thugge told the National Assembly Finance and Planning Committee that a few banks will be asked to explain how they will meet the KSh5 billion target for 2026 and that one or two may struggle to do so.

He added that banks with core capital below the threshold have not yet responded to the regulator’s request for written plans before year-end.

At the close of June, fourteen lenders – including Middle East Bank, M-Oriental Bank, Bank of Africa, Premier Bank, Guardian Bank, DIB Bank and Habib Bank AG Zurich – reported core capital under KSh5 billion, while seven others – such as Credit Bank, UBA Bank, Development Bank of Kenya, African Banking Corporation, Access Bank and Consolidated Bank of Kenya – missed the KSh3 billion goal set for the end of 2025.

The central bank warned it could reclassify non-compliant institutions as micro-finance banks, although no downgrades have been enacted so far.

Sources said the Treasury did not consult the CBK before advancing the deadline extension, which followed lobbying by smaller banks.

Mbadi announced that he will propose amendments to the Business Laws (Amendment) Act 2024 to allow banks to achieve the KSh10 billion minimum by December 31, 2032 without the yearly milestones, arguing that the change would give banks flexibility while protecting shareholder value and investor confidence.

“The National Treasury has no regulatory mandate. Anybody rational will choose to go with what the Banking Act says and not some statement made on the floor of Parliament without legal backing,” said a chief executive of a major bank who asked to remain anonymous.

The regulator cited heightened exposure to climate-related events and cyber-security attacks as reasons for stronger capital buffers, with Thugge noting that banks need funds to acquire technology that shields them from such shocks.

CBK officials said a bank failure, even of a small institution, could trigger systemic disturbances across the economy.

The heightened capital floor is expected to open space for new entrants and drive consolidation, with several continental banks eyeing Kenya as a regional hub; senior research analyst Shadrack Manyinsa said the larger capital base creates “opportunities for easy strategic entry to Kenya’s lending space by muscling in with capital.”

Earlier this year, Nigeria’s Zenith Bank bought Paramount Bank, which held KSh3.37 billion in core capital at the end of June, and Access Bank completed the acquisition of National Bank of Kenya from KCB Group, planning a merger to form a larger, compliant lender.

The CBK has also proposed that banks retain a higher proportion of common equity tier 1 capital before paying dividends and that those experiencing rapid credit growth maintain an additional capital buffer; domestic systemically important banks will need an extra buffer of between 0.5 per cent and 2.5 per cent of their loan books.

In a separate initiative, the central bank is assessing the use of agentic artificial-intelligence tools in banking, with Director of Research Robert Mudida warning that while AI can automate payments, it also poses risks if it assumes decision-making previously performed by humans, and stressing that human oversight will remain essential.