The Central Bank of Kenya (CBK) has differed with the Treasury over the extension of the Sh10 billion capital requirement for commercial banks, ordering lenders to ignore pronouncements by the Cabinet Secretary that eliminated the staggering of the capital over five years.
The CBK has directed banks to stick to the initial plan of raising minimum core capital to at least Sh5 billion by the end of next month, Sh6 billion next year, Sh8 billion in 2028 and Sh10 billion in 2029.
This contradicts the Treasury’s position that set a one-off hard deadline of December 2032 and eliminated the staggered build-up, which spared 14 banks from the burden of raising at least Sh33 billion by the end of December.
The regulator has ordered banks with core capital of less than Sh5 billion to offer written explanations on how they plan to meet the requirement before year-end.
‘There are a few banks where we want them to come and tell us how they are going to meet the target for 2026, which is Sh5 billion.
There are one or two that might struggle, but we want to hear from them how they are going to meet that target,’ CBK Governor Dr Kamau Thugge told the National Assembly Finance and Planning Committee.
‘That is our position and have communicated to the National Treasury expressing that position,’ he added.
Dr Thugge disclosed that the banks whose capital was below the set target were yet to respond to the regulator amid confusion in the sector over the higher core capital.
As at the end of June, 14 banks including Middle East Bank, M-Oriental Bank, Bank of Africa, Premier Bank, Guardian Bank, DIB Bank and Habib Bank AG Zurich, had core capital less than Sh5 billion.
Seven banks, including Credit Bank, UBA Bank, Development Bank of Kenya, African Banking Corporation, Access Bank and Consolidated Bank of Kenya, had not met the Sh3 billion target set for the end of 2025 by June this year.
The CBK had warned it could downgrade banks that fail to meet the capital requirements to microfinance banks, but no action has been taken against those lagging.
Sources within the sector indicated the Treasury did not consult the CBK when it decided to extend the deadline following lobbying by small banks, which were under pressure to meet the requirements.
Treasury Cabinet Secretary John Mbadi tabled the proposal to extend the deadline a day after the regulator told the market that the deadline would not be extended and banks should work towards meeting the Sh5 billion target for this year.
The regulator has now stamped its authority in the industry and is asking banks to stick to the capital-raising schedule in the law.
‘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 CEO in a top bank, who spoke on condition of anonymity.
Mr Mbadi did not make amendments to the Banking Act to remove the scheduled capital-raising plan despite proposing legal changes to back the extension and removal of the staggered fundraising.
‘I will be proposing amendments to the timelines specified in the Business Laws (Amendment) Act 2024 to allow commercial banks to raise the minimum core capital to Sh10 billion by December 31, 2032 without the annual milestones,’ said Mr Mbadi during the budget statement on Thursday.
Mr Mbadi had argued the amendments would ensure flexibility for the banks to pursue capital raising while preserving shareholder value and sustaining investor confidence.