Bankers Warn Loan Costs Could Rise After CBK Proposes Tougher Rules for Biggest Banks

# What happened

Kenya (CBK) has proposed new rules targeting the country's largest banks by designating some as Domestic Systemically Important Banks (D-SIBs). Under the proposal, those banks would hold extra capital buffers and higher equity before paying dividends. The rules are meant to reduce the risk that failure at a large bank would threaten the wider financial system.

# Why bankers are worried

Association (KBA) says the timing of the proposal could tighten credit. KBA CEO Raymond Molenje warned that requiring tier one banks to raise capital and liquidity could reduce the amount they lend to customers. He argued the industry is already working toward an existing Ksh10 billion minimum core capital requirement and that regulators should wait until that transition is complete.

Molenje described the measure as sensible in principle but said it should not be implemented immediately because it could slow credit growth just as lending to households and businesses begins to recover.

# CBK's position and broader context

CBK says Kenya's banking sector remains stable, with banks holding capital and liquidity notably above regulatory minimums. The regulator also pointed out that demand for affordable credit is still unmet, particularly among small and medium-sized enterprises. The average lending rate has fallen to about 14 percent, according to CBK figures cited in the coverage.

Deputy Governor Gerald Nyaoma urged banks to use the improving economic environment to increase lending to micro, small and medium enterprises (MSMEs), which CBK considers important for economic growth.

# Practical implications for borrowers and banks

• Borrowers: If the proposed buffers force big banks to hold more equity and liquidity, banks may restrict lending or raise prices to preserve capital, which could push loan costs higher. KBA has signaled this as the principal concern.

• Banks: Tier one banks would need to weigh the cost of meeting new buffers against business objectives like lending volumes and shareholder returns. They may pause dividend payouts until they meet new requirements.

• SMEs and MSMEs: CBK highlights unmet demand for affordable credit among smaller firms. If large banks cut lending, smaller firms could face tighter access unless other lenders expand or targeted policies offset the effect.

# What to watch next

• Timeline for rule implementation: KBA has called for postponement until the Ksh10 billion core capital rollout concludes. Watch for CBK announcements on implementation dates or transitional arrangements.

• Credit availability and pricing: Track changes in lending volumes to businesses and households and any movement in the average lending rate around the current 14 percent level.

# Bottom line

CBK's proposed D-SIB rules aim to reduce systemic risk by forcing the biggest banks to hold more capital and liquidity. The banking industry warns this could tighten credit and raise loan costs if imposed now, while the regulator points to stability in the system and an existing shortfall of affordable credit for SMEs.