The Central Bank of Kenya proposed tighter capital and distribution rules for commercial lenders. Banks with common equity tier 1 capital below 8.625% of risk-weighted assets would be barred from paying dividends under the draft. The regulator also proposed a countercyclical capital buffer of up to 2.5% of risk-weighted assets. The draft was released for public consultation on 10 September, with comments due by 7 November.
The proposals form part of revised prudential and risk-management guidelines published by the central bank. They also include a framework for domestic systemically important banks. Under the draft, institutions above an 8.625% ratio but no higher than 9.25% would have to retain at least 80% of earnings.
PAYOUTS WOULD TRACK CAPITAL STRENGTH
The draft applies graduated distribution restrictions when a bank's CET1 ratio falls within a 2.5% capital conservation buffer above the 8% minimum. Institutions with ratios above 9.25% and up to 9.875% would retain at least 60% of earnings, while those above 9.875% and up to 10.5% would retain at least 40%.
Banks above the 10.5% threshold could distribute all profits, subject to other applicable requirements. The draft says the framework would apply at the consolidated level, with restrictions imposed on distributions out of the consolidated group.
SYSTEMIC BANKS FACE EXTRA BUFFERS
The regulator could impose a higher loss absorbency surcharge of 0.5% to 2.5% of risk-weighted assets, met with common equity, on banks designated as systemically important, based on factors including size, complexity, interconnectedness and substitutability. A separate countercyclical buffer would be required where the central bank determines that a build-up of credit risk could lead to system-wide stress, and would be announced 12 months in advance.
Until the guidelines are finalised, the thresholds remain proposals rather than binding limits.