Borrowers Face Higher Loan Costs As CBK Tightens Rules For Banks

The Central Bank of Kenya (CBK) has floated new regulations aimed at Domestic Systemically Important Banks (D-SIBs), the handful of institutions so deeply woven into the country’s financial fabric that their collapse would send shockwaves through the wider economy.

Under the proposal, these banks would need to hold thicker capital cushions, including beefed-up equity, before they can even think about paying out dividends.

Not everyone’s on board, at least not yet. The Kenya Bankers Association (KBA) pushed back on Thursday, September 24, arguing that the timing couldn’t be worse.

Banks, after all, are still in the thick of meeting the Ksh10 billion minimum core capital requirement, a separate but related climb they’re already partway up.

KBA CEO Raymond Molenje didn’t mince words about what piling on more requirements now could mean for ordinary borrowers.

Tier, one banks facing pressure to boost both capital and liquidity ratios, he warned, will likely respond the way any business would when its resources tighten by pulling back.

“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.

His worry isn’t just theoretical. Credit to businesses and households has only just begun clawing its way back, and Molenje fears fresh capital demands could choke that recovery before it gains real momentum. He was careful to note that he isn’t against the idea itself, just its timing.

“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.

CBK, for its part, isn’t backing down. The regulator insists Kenya’s banking sector is in solid shape, with capital and liquidity buffers sitting comfortably above what’s legally required.

If anything, officials say, the real problem lies elsewhere; plenty of small and medium-sized businesses still can’t get affordable credit, even with average lending rates having eased to around 14 per cent.

CBK Deputy Governor Gerald Nyaoma used the moment to nudge banks in the opposite direction from where the KBA seemed to be leaning.

Rather than pulling back, he said lenders should be leaning into the improving economic climate and channeling more credit toward micro, small and medium enterprises, the segment he called a critical driver of Kenya’s growth.

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