Central Bank Tightens Grip on Banking Sector with New Regulations

The Central Bank has introduced new regulations aimed at strengthening the banking sector’s stability and ensuring that institutions operate in a responsible manner. The regulations, published in the Gazette, come into effect immediately.

Key Provisions

• The Minister of Finance is empowered to amend the Second Schedule, which outlines the minimum capital requirements for banks operating in Kenya.
  • Any changes must be laid before Parliament and approved within 20 days, failing which they will be deemed void.
• Institutions incorporated outside Kenya must maintain a minimum amount of assigned capital at all times while doing business in the country.
  • This is aimed at ensuring that foreign banks have sufficient funds to meet their obligations in Kenya.
• The Central Bank has introduced new rules governing the opening and closing of branches by banking institutions.
  • Institutions must obtain approval from the Central Bank before opening a new branch or changing the location of an existing one.
  • The bank may require institutions to demonstrate their financial stability, management expertise, and compliance with regulatory requirements before granting approval.

Stricter Requirements for Branch Closures

• Institutions seeking to close branches or subsidiaries outside Kenya must give written notice to the Central Bank at least six months prior to closure, or such shorter period as the bank may allow.
• The Minister of Finance is empowered to approve amalgamations and transfers of assets and liabilities between banking institutions.
  • The Minister may grant approval if satisfied that the transaction will not be detrimental to the public interest.

Impact on the Economy

These new regulations are aimed at ensuring the stability and integrity of the banking sector, and are expected to have a positive impact on the economy as a whole.