Nairobi, May 6 : Access Bank Kenya and Consolidated Bank face the toughest road to meet Kenya’s revised core capital requirement of Sh10 billion by 2029, starting from below even the existing Sh1 billion minimum.
Consolidated Bank, weighed down by accumulated losses of Sh4.45 billion, had a negative core capital of Sh731 million as of December 2024 and must raise Sh4 billion by the end of 2025 to hit the first capital threshold of Sh3 billion.
It is planning a rights issue, though doubts persist given Treasury’s previous failure to inject funds despite backing the bank.
Access Bank Kenya, a Nigerian multinational’s local subsidiary, posted a Sh1.2 billion loss last year, eroding its capital base to Sh152 million.
The Central Bank’s new directive, phased over five years, is pushing all banks to raise capital — from Sh3 billion in 2025 to Sh10 billion by 2029 — to bolster the sector’s stability.
Access Bank is likely to lean on its parent company’s deep pockets, especially as it eyes a strategic acquisition of the National Bank of Kenya from KCB Group, following its 2020 buyout of Transnational Bank. The plan is to merge NBK with Access Bank Kenya for a stronger regional presence.
Other small lenders also face pressure, including UBA Kenya, Development Bank, Middle East Bank, and M-Oriental. Some may rely on retained earnings, while others could be forced into mergers or acquisitions to survive.
The race to meet capital targets is expected to reshape Kenya’s banking landscape by favoring stronger, consolidated entities.
In related news, Kenya’s commercial banks have rejected a proposed loan pricing framework by the Central Bank of Kenya (CBK), warning that it could amount to the reintroduction of interest rate caps through the back door and threaten credit access, especially for small businesses.
The new proposal would require banks to peg lending rates to the Central Bank Rate (CBR), along with a fixed premium referred to as “K”. However, the Kenya Bankers Association (KBA) insists that the interbank rate—a market-based benchmark reflecting real-time liquidity—would serve as a more responsive and practical reference point.
The bankers said that they have pledged to disburse KSh 150 billion annually to small businesses from 2025, a target that would be unachievable under the proposed CBK model.
“Interest rate controls will drive banks to stop lending to segments of the economy that are perceived to be risky, such as small businesses and low-income individuals, stagnating economic growth and development, employment creation, and investment,” the lobby said.
At the heart of the disagreement is CBK’s plan to anchor lending rates to the Central Bank Rate (CBR) and impose a regulator-approved premium on top, effectively capping interest rates.
KBA argues that such a move contravenes Kenya’s legal framework for a liberalized interest rate regime and risks repeating the damaging credit contraction experienced between 2016 and 2019, when similar caps were in place.
The banking lobby is instead pushing for the adoption of the interbank rate as the base reference, citing its alignment with global best practices and its stronger reflection of market liquidity conditions.
“CBK will not operationalize the monetary policy decision after setting the CBR. Setting the CBR without triggering its transmission leads to misaligning market outcomes from the policy,” KBA acting CEO, Raymond Molenje said in a statement.
The 2016 interest rate cap, intended to lower borrowing costs, instead stifled credit flow as banks became more risk-averse. With fewer profitable lending options, banks shifted focus to low-risk borrowers, leaving SMEs and high-risk individuals with limited access to loans. The policy, which hindered economic growth and job creation, was repealed in 2019 after its unintended consequences became clear.
KBA contends that relying solely on the CBR, without activating supporting liquidity operations, could disconnect monetary policy from real market dynamics. The CBK’s silence on the operational framework for monetary policy— especially its stance on the interbank rate corridor — has also raised concerns about policy’s effectiveness.
Bankers also noted that the Central Bank Rate doesn’t accurately capture their true cost of funds, which they argued is shaped more by market forces than policy signals.
“The rate of return on commercial bank deposits is not benchmarked on CBR but rather the depositors’ assessment of the opportunity cost of investing in Government securities, which is reflected in the treasury bill rate,” KBA added.
The banking lobby argues that using the interbank rate allows for better transmission of monetary policy and offers flexibility in pricing loans based on actual operational costs and borrower risk. They also point out that their proposed model aligns with international benchmarks like SOFR in the U.S. and SONIA in the U.K., which are derived from short-term market rates, as evidence that market-driven frameworks support effective monetary policy transmission.
The two proposals are meant to find a new model to replace the Risk-Based Credit Pricing Model, which allows banks to price loans based on a combination of base rates, borrower risk, and additional charges. The model was aimed at embedding responsible lending, customer-centric business models, and ethical banking. The model
However, CBK’s assessment found that many banks had failed to implement the model as intended.
“some banks did not apply the model pricing to some credit facilities such as mobile loans, cash backed facilities, facilities under funded schemes and facilities under the Government-to-Government arrangements.” The Apex bank notes.
CBK also faulted the Risk-Based Credit Pricing Model for causing unrealistically high model outputs that forced banks to apply internal discounts, infrequent updates to cost variables, the imposition of unapproved charges like commitment fees and late penalties, and the lack of proper board oversight or credit pricing documentation.
