Claims of a potential slowdown in bank lending to households and businesses this year saw the National Treasury extend the Sh10 billion core-capital requirement, setting a one-off hard deadline of December 2032.
Cabinet Secretary to the National Treasury John Mbadi held engagements with banks ahead of the 2026/27 budget speech and agreed to the request for the removal of annual milestones on meeting the broader Sh10 billion core capital requirement.
Banks were initially expected to have at least Sh3 billion in core capital by the end of December last year and raise this limit further to Sh5 billion this year before meeting 2027 and 2028 annual milestones of Sh6 billion and Sh8 billion, respectively, and finally reach Sh10 billion in December 2029.
The lenders, however, informed Mr Mbadi that banks short of the capital targets were likely to hold back on lending to households and businesses as they sought to preserve funds to meet the higher regulatory requirements.
“Allowing a longer timeline facilitates banks to serve customers better and uninterrupted, deploying more capital into lending to the private sector,” said Raimond Molenje, the chief executive officer of the Kenya Bankers Association (KBA).
“Our goal as KBA is to have growth in private sector lending in double digits at over 14 percent, and this policy accommodation will go a long way in realising this double-digit growth.”
Banks claimed that, without the alteration by Mr Mbadi, private sector lending would have slowed down this year as smaller banks pushed to meet the Sh5 billion minimum core capital requirement.
Private sector lending has been on the recovery path over the past 12 months, supported by an easing of the Central Bank of Kenya (CBK) monetary policy, which has supported increased credit flows to key sectors of the economy.
Monthly credit growth to the private sector reached a high of 9.3 percent in May 2026, rebounding from a growth rate of 4.5 percent at the same time last year and bordering on touching double-digits for the first time since the opening quarter of 2024.
The recovery has been anchored on a steady decline in average commercial bank lending rates, which fell to 14.5 percent in May from 14.7 percent in February 2026.
“Short-term interest rates and commercial banks' lending rates have declined in line with the recent reductions in the Central Bank Rate (CBR),” CBK said last week.
The ease in commercial bank lending rates and the recovery of private sector credit has also coincided with the adoption of the revised risk-based credit pricing model, which seeks to have the loan rates quickly mirror changes to CBK’s monetary policy.
CBK noted that the cost of borrowing has continued to come down while credit growth has improved despite holding its benchmark rate unchanged in two consecutive policy meetings.
“We have seen commercial bank lending rates decline from 17.2 percent to 14.5 percent at present. The intention of lowering the CBR was to stimulate credit to the private sector, and indeed, we have also seen that lending by banks to the private sector has grown from a contraction of 2.9 percent in January of 2025 to 9.3 percent in May 2026,” said CBK Governor Kamau Thugge.
The extension of the capital raising deadline will come as a reprieve to at least four lenders who were yet to meet the December 2025 minimum core capital requirement of Sh3 billion, risking the revocation of their banking licenses and reclassification as microfinance banks.
The four banks included Credit Bank, Consolidated Bank of Kenya, Development Bank of Kenya (DBK) and Access Bank Kenya.
Credit Bank had been racing to meet the higher capital requirement through a rights issue seeking Sh4.5 billion, while the State-owned DBK and Consolidated Bank had been seeking support from their primary shareholder-the National Treasury.
Access Bank Kenya had been counting on its merger with the National Bank of Kenya (NBK), its most recent acquisition, to achieve compliance with the regulatory requirement.
Banks say they now have adequate time to engage with potential investors without compromising on the industry’s role in the economy.
“This will allow banks ample time to engage with potential investors and strategic partners while preserving the value of banks,” Mr Molenje added.
Kenya’s higher capital threshold mirrors similar moves in neighboring Uganda and Tanzania, but the East African Community peers have given their lenders a shorter window to meet the enhanced capital requirements.
The Bank of Uganda, for instance, announced a six-fold increase in the minimum absolute paid-up capital requirement for tier I credit institutions licenses in November 2022 to UGX150 billion (Sh5.23 billion), to be reached by mid-2024.
The adjustment to Kenyan banks' core capital increase by the National Treasury comes a year after its first pronouncement at the 2025 budget statement. The change will require further amendments to the Central Bank of Kenya Act. In announcing the changes, the Treasury said the longer compliance period would instill investor confidence and maintain shareholder value.
“While the government firmly upholds the strategic necessity of raising the minimum core capital, it is prudent that this transition has been managed in a manner that is least disruptive to credit access and financial services delivery, particularly to the Micro, Small and Medium Enterprise segment and other niche markets currently served by the banking industry,” said Mr Mbadi last Thursday.
“This will provide the flexibility necessary for institutions to pursue measured, commercially sound, and market-sensitive capital-raising strategies in a manner that preserves shareholder value and sustains investor confidence.”
