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 t