The National Treasury is formulating a new policy that will help mitigate risks occasioned by a downturn in the financial markets.
The micro-prudential banking policy will cushion banking, insurance, pension schemes and capital markets by safeguarding capital and liquidity adequacy.
The policy is expected to be ready by the end of 2019/2020 financial year.
"We are at the formative stages," chief economist at the Treasury Christopher Oisebe said during the Kenya Bankers' annual Banking Research Conference.
He said the policy will offer guidelines on how all the financial sectors can fit in together, with the banking being the optical point of them all.
The policy ensures stability of individual financial institutions , hence stability of the financial system as a whole to avoid any crisis.
"What happens in banking sector may affect to other sectors, with potential adverse effects at a macroeconomic scale,” he said.
This comes at a time the banking industry is positioning itself to remain stable in an open and highly competitive financial environment from non-bank players, especially financial technology firms and mobile network operators.
This has seen regional expansion, mergers and acquisitions as banks seek to raise asset value and profits, amid effects of interest rate caps, tight liquidity in the market underpinned by credit expansion and a slowdown in global economic growth.
Acting National Treasury CS Ukur Yatani, said the banks should assess the market to ensure that competition viewed as a sign of market dynamism, does not pose a potential source of new risks that will have adverse consequences in the future.
“Growth must be accompanied by market stability." he said.
Kenya Bankers Association chairman and KCB Group chief executive Joshua Oigara said the banking industry will this year focus on taking advantage of fintechs and bracing themselves for competition.
The sector is expected to create 2.5 million jobs, grow by more than 10 per cent and become a frontier in the economy by guiding the growth of other sectors despite the frictions in the environment.
However, the adoption of cost management mechanisms and technology is expected to lead to increased lays offs. The interest rate cap has also cut off around 2.5 million people from the lending bracket.
Oigara said around 1.5 million are fall within the low risk category of borrowers while while the other 11.5 are high risk, most of them being SMEs.
"Banks have not been able to price appropriately credit especially for the SMEs. But we hope we will find a solution with the regulations,” Oigara said.
