3. Banking Act, 1989 (Cap 488)

This law regulates the practice of commercial banks which provide financing on both the supply and demand side of housing finance.

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Quick Link: https://new.kenyalaw.org/akn/ke/act/1989/9/eng@2024-12-27

The purpose of this statute is to consolidate the law regulating the business of banking in Kenya.

· Section 4 of the Act requires every institution intending to undertake banking business as well as the business of mortgage finance to apply for and obtain a licence from the Central Bank of Kenya.

· Section 10 limits banks from granting any credit facility or guarantee to one single person of an amount in excess of 25% of their core capital. However, the Central Bank may make an exception to this single obligor rule with respect to mortgage finance companies.

· Section 12 (c) of the Banking Act places a restriction on trading and investments of the regulated institutions by providing that such institutions shall not purchase, acquire or hold any interest in land where the total amount of such investment exceeds the prescribed proportion of the core capital, save for where such land is held for the purpose of business or providing housing to its staff.

· Further, under section 14 of the Act, regulated institutions save for mortgage finance companies, cannot make loans or advances for the purchase, improvement or alteration of land such that the aggregate amount of such loans or advances exceeds 40% of the institution’s total deposit liabilities. This is a limitation against potential overextension by a bank in lending in real estate, for prudence purposes. Under section 14(2) however, the Central Bank may permit an institution to exceed this level up to 70% of the total deposits.

· Section 15 provides for mortgage finance companies and provides that they may advance loans for acquisition, improvement, alteration, development or adaptation for a particular purpose of land in Kenya the repayment of which will be secured by a mortgage or charge over land with or without other additional securities.