CBK Wants Stronger Powers to Rescue Troubled Banks Before Panic Starts

By Emmanuel Korir

In banking, the worst thing a struggling lender can do is ask for help. Not because help is unavailable, Kenya’s Central Bank has quietly kept more than one institution afloat over the years, but because the moment rumours  gets out that a bank is borrowing from the regulator, customers start queuing at ATMs. Depositors panic and rush to withdraw savings before everyone else does. Within hours confidence,  the invisible currency that keeps Banks alive, begins to crack.

It happened with Dubai Bank in 2015. It happened with Imperial Bank. Chase Bank followed in 2016. Each collapse left behind a trail of frozen accounts, job losses, and a generation of customers who still think twice before trusting a smaller lender with their savings.

Those events cast a long shadow. And now nearly a decade later, the Central Bank of Kenya is trying to change the architecture of what happens when a bank gets into trouble before it reaches the point of no return.

The CBK (Amendment) Bill 2026, currently before the National Assembly, proposes something that sounds technical but carries significant practical weight: removing the ceiling on emergency loans that the central bank can extend to distressed commercial and microfinance banks.

Under the current framework, the CBK’s liquidity support tools are structured around short-term lifelines mechanisms designed more to discourage use than to sustain a struggling institution through a prolonged crisis. The proposed changes would allow the regulator to extend emergency credit for up to 12 months and beyond that at its discretion, for banks facing stress that arose through no fault of their own management.

The bill’s language is careful and deliberate. Emergency assistance, it states, “shall be discretionary in nature, temporary, and subject to such terms and conditions as may be determined by the bank.” There are no blank cheques here. But the critical shift is that the CBK would no longer be constrained by rigid caps that force it to withdraw support on an artificial timeline  even when a bank genuinely needs more time to stabilise.

Governor Kamau Thugge has been building toward this kind of structural reform since he took the helm at the central bank. The amendment is less a sudden policy pivot than the culmination of several years of quiet retooling  a regulator that watched the consequences of inadequate crisis tools and decided to build better ones.

To understand what this bill changes, it helps to understand how the CBK actually provides emergency support todaythe first tool is the discount window overernight of secured loans extended at a penal rate above the Central Bank Rate. The current rate sits at 9.25 percent, built on a CBR of 8.25 percent plus a half-percentage-point premium. That premium is deliberate. The CBK’s own policy notes describe it plainly: the penalty “restricts banks to seek funding in the market, only resorting to Central Bank funds as a last solution.”

The second mechanism is the Liquidity Support Framework (LSF), a medium-term facility for banks facing more sustained pressure. In the 12 months to June 2025, the CBK deployed Sh44.9 billion through the LSF alone part of a broader Sh56.5 billion in total securities and advances to the banking sector during that period. That is not a small number. It tells you something about the quiet turbulence that has been running beneath the surface of Kenya’s banking sector.

The third is the interbank market  banks lending to each other which has historically been where smaller institutions get squeezed hardest. Tier-one lenders, which control the lion’s share of available liquidity in the system, have been reluctant to lend to their smaller peers since the triple bank failures of the mid-2010s. Risk perceptions hardened. The informal credit relationships that are supposed to keep the system liquid started to break down for those who needed them most.

The CBK has spent years trying to fix this. It introduced an interest rate corridor in 2023 to bring interbank rates closer to the benchmark rate. It launched DhowCSD, a digital central securities depository that made it easier for banks to use Treasury bills and bonds as collateral when borrowing from each other. Gradually, the plumbing has improved.But when a bank is truly in trouble facing a liquidity crisis driven by external shocks rather than internal mismanagement, the existing tools have not always been enough, or flexible enough, to prevent panic from taking hold.

One of the most important distinctions in the proposed amendment is the explicit carve-out for banks whose distress stems from factors outside management’s control. This matters more than it might initially appear.

Kenya’s banking sector is entering a period of significant pressure. Fifteen lenders remain below the Sh5 billion capital threshold that the CBK has set for December 2026. Among those yet to fully bridge their gaps are African Banking Corporation, Development Bank of Kenya, Credit Bank, and Consolidated Bank  each with shortfalls running into billions of shillings. The Treasury extended the ultimate Sh10 billion deadline to 2032, but interim capital targets remain on the clock.

For a bank grinding through a capital raise negotiating with investors, managing a rights issue, navigating a potential merger an unexpected liquidity shock can be fatal even if the underlying institution is fundamentally sound. A large corporate depositor withdraws funds. Global markets turn. A loan book that was performing starts to wobble during an economic downturn.

None of these are necessarily signs of management failure. They are the kinds of shocks that can tip a fragile but salvageable institution into a spiral if support is not available or not available for long enough.The amendment is a recognition that the current framework has not always made that distinction clearly enough.

The banking sector of 2026 looks quite different from the one that watched three institutions fold within 18 months a decade ago.Credit growth, which contracted by nearly three percent in early 2025, had recovered to 9.3 percent expansion by May this year. Commercial lending rates have fallen from 17.2 percent to 14.5 percent as the CBK’s rate-cutting cycle — 425 basis points of easing since August 2024 has gradually filtered through to the real economy. The central bank held its benchmark rate at 8.75 percent at the June 9 meeting, signalling that the easing cycle is pausing while inflation remains contained at around 4.4 percent.

On the surface, this looks like a system in reasonable health. But the capital shortfalls are real. The global uncertainty oil price volatility, the shock of the Middle East conflict, Kenya’s own fiscal tightrope  is real. And the interbank market’s structural bias toward larger lenders, while improved, has not been fully resolved.The CBK’s amendment bill is, in that context, a hedge. Not against imminent crisis, but against the next crisis whenever it comes, and in whatever shape it arrives.

There is one problem the bill cannot fully legislate away. Bankers still talk about the stigma of the discount window in hushed tones. A bank that borrows from the CBK is, the eyes of the market, a bank that could not find funding anywhere else. That perception however unfair, however misapplied, does not disappear because the terms of CBK support become more flexible.

What might help is if the CBK, alongside legislative change, continues to build the operational norms around confidentiality and structured recovery that allow distressed institutions to stabilise quietly. The bill gives the regulator the tools. Using them well — with discretion, with surgical precision, without triggering the very panic they are meant to prevent — is the harder task.

Governor Thugge has shown he understands this. His public statements have consistently balanced transparency about the sector’s capital challenges with measured reassurance about its overall resilience. That tone matters as much as any amendment.

None of this financial architecture is visible to the person who walks into a branch on a Monday morning, slides their passbook across the counter, and asks to withdraw their savings.What they care about is whether the money is there. Whether the bank will be open next week. Whether the ATM will work.

The CBK’s broader reform agenda the capital requirements, the liquidity framework amendments, the interbank market improvements, the new credit pricing rules  is ultimately in service of that person. A banking sector with better shock absorbers is a banking sector where fewer people lose sleep over the safety of their deposits. Whether that person in the queue ever hears the phrase “CBK Amendment Bill 2026” is doubtful. What they might notice, some years from now, is that fewer banks fail. That fewer mornings start with news of frozen accounts and closed branches. That would be the quiet success this legislation is designed to achieve.

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Emmanuel Korir is a journalist who tells stories where markets, people, and policy meet