The Kenyan central bank (CBK) is gearing up to announce bank capital add-ons for climate risks by May, according to a press briefing on Thursday.
The initiative was made public by central bank governor Kamau Thugge, in response to a query about the supervisor’s plans to promote financial market stability.
“I believe very strongly that capital requirements for banks need to be increased as we have seen growing risks from climate change and cyber security,” he said. “We need strong banks that can operate in Kenya and across east Africa.”
He added: “We expect to be making a proposal, and will seek public feedback, in the coming month over what we think the capital requirements for banks should be.”
If the proposals are successful, it would make the CBK one of only a handful of central banks, including the European Central Bank (ECB) and the Reserve Bank of New Zealand, that have committed to penalising poor management of climate risks by levying higher capital requirements.
The ECB reported that a “small number” of banks were slapped with climate-related capital charges in 2022.
The news comes soon after Responsible Investor reported that Morocco’s Bank Al-Maghrib was looking into broadening the scope of its regulatory engagements on capital requirements, known as Pillar II requirements, to integrate climate factors.
Kenya’s central bank is in the middle of what has been described as its “second phase of reforms” on climate, which includes the development of a green taxonomy in partnership with the European Investment Bank (EIB). This is the first technical assistance scheme of its kind to be implemented in East Africa by the EIB and is financed by the German government.
The CBK has separately said revealed that it is developing a disclosure framework for Kenyan banks that will be aligned to ISSB standards and “international standards”.
The first phase of reforms saw the CBK issue guidance for banks on managing climate-related risks in 2021. It joined the Network for Greening the Financial System, the global climate supervisory forum, a year later.
In November, Thugge said that the central bank was committed to greening the Kenyan financial system and enhancing Kenya’s attractiveness as a green finance hub.
Read More: Kenya to table proposals for climate-related bank capital requirements