Banks do more than hold deposits and make loans. They connect households, businesses, other banks and payment systems. When a bank plays a particularly large role in those connections, its distress can affect far more than its own customers.

That is the concern behind the Central Bank of Kenya’s (CBK) proposed framework for domestic systemically important banks, or D-SIBs. Published for public comment alongside revised prudential and risk management guidelines, the framework sets out how CBK would identify banks whose failure could cause wider disruption, and how it would supervise them. Comments are due by 7 November 2026.

How would CBK identify a systemically important bank?

Size is a major factor, but it is not the only one. The draft framework also considers a bank’s connections with other financial institutions, how difficult its services would be to replace, the complexity of its activities and its importance to the domestic economy. For example, a bank that processes a substantial share of payments could be important even when the discussion goes beyond the size of its balance sheet.

This approach recognises a practical question: what would happen elsewhere in the economy if this bank could no longer operate normally?

What would change for designated banks?

The most visible proposal is an additional capital buffer. Under the draft, designated banks would be placed in one of three categories according to their systemic importance and required to hold additional high quality capital equal to 0.5%, 1.5% or 2.5% of risk weighted assets. The framework proposes an annual assessment.

Capital provides a cushion against losses. Requiring a larger cushion from a bank whose distress could spread widely is intended to strengthen the resilience of the financial system. It also has a business cost: capital retained to meet regulatory requirements may affect a bank’s capacity for dividends, expansion or lending. The eventual effect would depend on each bank’s existing capital position and the final rules.

Why should customers and investors care?

For customers and businesses, the potential benefit is a banking system better able to withstand shocks and maintain essential services. That does not mean a designated bank is guaranteed against failure, or that its deposits carry a new guarantee.

For bank shareholders, the proposal creates a more detailed investment question. A strong franchise and growing profits remain important, but investors should also examine capital headroom, asset quality and the sustainability of dividends. A bank already holding ample capital may be affected differently from one that must build a larger buffer.

There is a wider market implication too. Stronger safeguards may support confidence in Kenya’s banking sector, while the cost of meeting them could influence how individual banks price loans, pursue growth and distribute profits. Those outcomes are possibilities to assess, not conclusions that can be drawn before the framework is finalised.

Our investment view

We see the proposed framework as a constructive step towards clearer supervision of banks whose operations matter greatly to Kenya’s economy. Systemic importance, however, is not itself an investment recommendation. A prominent bank can still be expensive at the wrong share price, and a new capital requirement can affect banks in different ways.

Our position is to watch the final framework and assess each listed bank on its own merits: the quality of its loan book, earnings, capital cushion, dividend capacity and valuation. For investors, the question remains whether the expected return justifies the price paid and the risks taken.

CBK’s consultation offers an opportunity to strengthen the framework before implementation. For investors, it is also a reminder that a bank’s strength should be judged by more than its size.