“The regulator now requires that if we are to pay dividends this year, we get approval from CBK on the size of payouts. The boards of banks intending to pay dividends will really have to justify the decision,” the bank CEO said.

The regulator’s order looks set to break the lenders’ record of incremental dividend payouts. Coupled with banks’ own risk aversion, the directive will have lenders declare low dividends.

In the previous financial year, KCB, Absa, Co-operative Bank, Stanbic, I&M,   and DTB   paid total dividends of Sh33 billion. This indicates a huge size of loss that income-focused investors are staring at this year   

The regulator has given banks up to the end of October to submit their revised capital levels through changes to their ICAAPs.

Governor Patrick Njoroge introduced the capital-measuring process in November 2016, requiring banks to identify, measure, and monitor risks and use this as the basis for allocating their funds.

Going forward, the regulator will have the final decision on whether or not it agrees with the new capital levels that each bank will submit. This will then determine if it will endorse any board’s decision to pay dividends.

The lending regulator sees Covid-19 as a major disruption that requires banks to change their current models and assumptions by making them more conservative.