Kenyan banks could be required to hold an additional capital buffer of up to 2.5 percent of risk-weighted assets during periods of excessive credit growth under new rules proposed by the Central Bank of Kenya (CBK).
The proposed Countercyclical Capital Buffer (CCyB) would sit above existing minimum capital requirements and the 2.5 percent Capital Conservation Buffer, increasing the amount of capital banks must hold when rising credit risks threaten financial stability.
The buffer would range from zero to 2.5 percent of total risk-weighted assets and must be met entirely with Common Equity Tier 1 (CET1) capital, according to the CBK proposals.
The regulator said the buffer would be activated when a build-up of credit risk threatens system-wide financial stability. CBK would normally announce the required buffer 12 months before implementation, giving banks time to raise or retain capital.
However, the regulator could shorten the implementation period if a systemic crisis is imminent and keep the buffer in place after risks have eased.
The draft rules retain minimum capital ratios of eight percent for CET1, 10 percent for Tier 1 capital and 12 percent for total capital. Banks would also continue to maintain the existing 2.5 percent Capital Conservation Buffer.
The proposals come as Kenya’s banking sector expands through acquisitions, product diversification and regional operations, while banks work towards a Sh10 billion core-capital requirement by 2032.
Tougher rules for systemically important banks
Kenya’s largest banks could also face additional capital requirements and restrictions under a proposed framework for institutions deemed domestic systemically important banks (D-SIBs).
Equity Bank, KCB Bank Group, NCBA Group, Co-operative Bank and I and M Bank are among institutions that could potentially be affected as CBK strengthens oversight of banks whose distress or failure could disrupt the wider economy.
Banks would be assessed annually based on their size, interconnectedness, substitutability, complexity and importance to the domestic economy.
Designations would be communicated by March 31, with the final list published by June 30.
The CBK could impose additional supervisory measures depending on each institution’s degree of systemic risk, including stronger capital requirements aimed at absorbing losses, reducing the probability of failure and limiting the need for government support.
Systemically important banks would face an additional CET1 surcharge of between 0.5 percent and 2.5 percent of risk-weighted assets under the CBK’s separate D-SIB framework.
The capital rules would also allow CBK to impose institution-specific Pillar II requirements for risks not adequately captured by standard capital calculations.
The framework follows the collapse of Dubai Bank, Imperial Bank and Chase Bank between 2014 and 2016, which disrupted confidence in Kenya’s interbank market.
Foreign-owned lenders, including Absa, Stanbic and Standard Chartered, could also be designated as systemically important. In such cases, CBK would engage their home regulators and parent institutions on recovery and resolution planning.
The scale of Kenya’s banking groups and their growing regional operations make the proposed rules particularly significant. KCB Group has Sh2.3 trillion in assets, with 31.3 percent attributable to operations outside Kenya, while 52 percent of Equity Group’s Sh2.2 trillion in assets comes from business units outside the country.
At least seven Kenyan banks now have regional operations. Equity operates in Kenya, Uganda, Tanzania, Rwanda, South Sudan and the Democratic Republic of Congo, while KCB has operations in those markets as well as Burundi.
Banks to prepare for failure without state support
The proposed capital rules are accompanied by a new recovery-planning regime requiring banks to prepare for severe financial stress without assuming government or extraordinary central bank support.
CBK says recovery plans should not assume government funding will be available or that the central bank will provide liquidity beyond pre-announced arrangements.
Emergency Liquidity Assistance and other extraordinary central bank facilities should therefore not be treated as recovery options.
Banks would instead be required to identify credible measures to restore capital, liquidity and financial viability before they become non-viable.
Recovery plans would be prepared and tested at least once every two years and submitted to CBK by April 30.
Where recovery efforts fail, the framework contemplates resolution tools including bail-ins, bridge institutions and transfers of ownership.
The proposed capital and recovery rules form part of CBK’s wider overhaul of banking regulations released for public consultation, with comments due by November 7, 2026.