Treasury Cabinet Secretary John Mbadi is seeking an agreement with the Central Bank of Kenya (CBK) to resolve a dispute over new minimum capital requirements that could force smaller lenders to raise billions of shillings or pursue mergers.
The Treasury and the regulator are holding discussions after a public disagreement over when commercial banks must achieve a minimum core capital of KSh10 billion, with Mbadi confirming that he had met CBK Governor Kamau Thugge to find common ground.
The dispute centres on two competing implementation timelines. Mbadi announced during the 2026 Budget speech that the government intended to extend the final compliance deadline to December 2032 and scrap annual capital-raising milestones.
The CBK, however, instructed banks to continue following the existing statutory schedule, which requires lenders to hold at least KSh5 billion in core capital by December 2026, KSh6 billion by December 2027, KSh8 billion by December 2028 and KSh10 billion by December 2029.
"We are in conversations with the governor of the central bank. This is a simple matter; we will sit with CBK, agree and communicate," Mbadi said.
The disagreement has created uncertainty among lenders, particularly smaller banks that are struggling to meet the rising capital thresholds. The Treasury's proposed extension has not been backed by the necessary legislative amendments to replace the existing milestones.
CBK Governor Thugge has maintained that banks must comply with the law currently in force. The regulator has asked institutions with core capital below KSh5 billion to submit written explanations detailing how they intend to meet the December 2026 requirement.
As of June 2026, 14 commercial banks had core capital below KSh5 billion. Seven lenders had also failed to meet the earlier KSh3 billion threshold that was due by December 2025.
The affected institutions include Middle East Bank, M-Oriental Bank, Bank of Africa, Premier Bank, Guardian Bank and Habib Bank AG Zurich, among others.
The higher capital requirement was introduced through the Business Laws (Amendment) Act, 2024, which raised the minimum core capital from KSh1 billion and established a phased transition towards KSh10 billion.
The Treasury argues that a longer adjustment period would give banks more room to raise funds without diverting resources away from lending to households and businesses. The Kenya Bankers Association has also supported a longer transition, saying it would allow lenders to maintain credit flows while pursuing capital-raising plans.
The CBK, meanwhile, argues that stronger capital buffers are necessary to protect the banking system against financial shocks, cyberattacks and other risks. It has warned that institutions failing to meet capital requirements could face regulatory downgrading.
The National Assembly's Finance and National Planning Committee has called for a balanced approach that strengthens financial stability without undermining competition, financial inclusion and the participation of locally owned banks.
For customers, the outcome could influence access to credit, particularly among small businesses and communities served by smaller lenders. A tighter timetable could accelerate bank mergers and acquisitions, while a longer transition would give institutions additional time to attract investors and strengthen their balance sheets.
