Kenya’s largest banks could be required to hold more capital under new regulations proposed by the Central Bank of Kenya (CBK), a move the Kenya Bankers Association (KBA) says could have an impact on lending and borrowing costs.
The proposed rules focus on Domestic Systemically Important Banks (D-SIBs), which are the country’s major financial institutions whose collapse could have significant effects on the wider economy.
Under the new framework, the banks would have to maintain additional capital buffers, including stronger equity positions, before they can pay dividends to shareholders.
However, the Kenya Bankers Association has questioned the timing of the proposal, noting that banks are already preparing to meet the Ksh10 billion minimum core capital requirement.
KBA CEO Raymond Molenje said requiring major banks to increase both their capital and liquidity levels could limit the funds available for lending to customers.
“When you come in and ask the tier one banks to be able to increase their capital and increase their liquidity ratio, what that means is that the tier one banks will also put some brake on lending to customers,” Molenje said.
According to Molenje, the additional requirements could slow the recovery in credit growth, particularly as lending to households and businesses has started showing signs of improvement.
He acknowledged that strengthening the banking sector was a positive proposal but argued that its implementation should come after banks have completed the ongoing transition to the Ksh10 billion capital requirement.
“Good proposal but wrong timing. It needs to wait. We need to first fix the Ksh10 billion for all the banks in Kenya,” he said.
Despite the concerns raised by the banking industry, CBK said Kenya’s financial sector remains stable, with banks maintaining capital and liquidity levels well above the minimum regulatory requirements.
The regulator also pointed out that many Kenyans and businesses still struggle to access affordable credit, particularly micro, small and medium-sized enterprises (MSMEs), even as the average lending rate has declined to around 14 per cent.
CBK Deputy Governor Gerald Nyaoma called on banks to take advantage of the improving economic conditions by increasing lending to MSMEs, which he identified as an important driver of economic growth in Kenya.
Tags
News