- A proposed increase in core capital from KES 1 billion to KES 10 billion could lead to the closure of 24 banks.
- Over 7,000 jobs and 627 bank branches could be lost.
- The core capital increase might limit credit access, slow economic growth, and reduce tax revenue.
- Smaller banks (Tier 2 and Tier 3) are at higher risk due to their limited resources.
- The KBA recommends implementing the capital increase gradually over eight years to reduce negative impacts.
24 banks in Kenya are on the verge of a total shutdown that will affect more than 7,000 employees if the proposed increment of core capital from 1 billion to 10 billion shillings over three years is implemented. This issue was raised during a session where the Kenya Bankers Association (KBA) made submissions on the proposed business laws before the National Assembly Finance Committee.
The bankers warned against introducing additional taxes on financial transactions, stating that the move would increase interest rates on loans. The proposed increment of core capital for financial institutions under the business amendment laws, from the current 1 billion to 10 billion shillings, would limit access to credit, stagnate the economy, reduce employment, and decrease government revenue from taxes.
According to the Kenya Bankers Association, the core capital increase will directly impact 24 banks, which would require a total of 150 billion shillings to meet the new threshold. These banks currently extend loans worth 539 billion shillings to the private sector, which is 133% of the total loans provided by all banks to the private sector.
During its presentation to the National Assembly’s Departmental Committee on Finance and Planning, the association noted that 6,779 Kenyan employees would be affected, with an additional 627 rental premises facing closure if the proposal is passed. The KBA argued that the move would be counterproductive, as it would limit service delivery to Kenyans and businesses.
However, lenders have been criticized for reducing credit to the private sector, particularly to MSMEs and SMEs, and instead channeling funds into government securities, which offer higher returns. The association proposed that the core capital increase be staggered over eight years, reaching 10 billion shillings by 2032.
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Other entities, such as Westminster and Lex Links Consultancy, also participated in Wednesday’s public hearing on the tax amendment laws. Deliberations on the tax amendments, tax procedures amendments, and business amendments laws are expected to shape the economy, particularly the formulation of the 2025–2026 budget-making process.
What is core capital, and why is it important?
Core capital is essentially money set aside to cushion the bank’s operations in case of financial crises, such as mass withdrawals or losses. It ensures that the bank can continue operating even during tough times. Currently, Kenyan banks are required to maintain KES 1 billion as core capital, but the proposal demands this be raised to KES 10 billion by 2027.
Out of the 49 banks in Kenya, not all can meet this new requirement. The big banks (classified as Tier 1) are likely to handle this easily, as many already generate tens of billions in profits annually. However, smaller banks—classified as Tier 2 and Tier 3—are the most vulnerable. Many Tier 3 banks operate with limited assets and smaller client bases, making it challenging to raise the required capital.