Kenya: Capital Requirement Rule to Trigger Bank Mergers

The Central Bank of Kenya (CBK) plans to lift its 10-year ban on issuing new banking licenses on July 1.


This change will open the market to fintechs and digital banks, which is expected to increase market competition and, possibly, bank consolidations as small banks are forced to merge or exit the industry.

“Fintechs will drive innovation in the sector, prompting traditional banks to adopt new technologies to stay competitive,” says Anne Kibisu, a banking analyst at Deloitte Kenya.

New and existing banks will face new capital requirements enacted in December 2024 under the Business Laws (Amendment) Act 2024. By 2026, banks will be required to maintain KES10 billion ($77 million) in capital.

This development follows a similar capital increase in 2009, when the requirement was raised from KES250 million to KES1 billion. That change prompted mergers, including KCB’s acquisition of National Bank in 2019. Analysts predict a similar wave of consolidation as smaller banks struggle to meet the new capital targets.

The central bank reports that 12 banks face a combined capital shortfall of KES11.8 billion. To comply with the new requirements, these banks needed to raise KES3 billion by December 2024, KES6 billion this year, and eventually KES10 billion by 2026.

“These increased capital thresholds are designed to help banks absorb economic shocks and continue supporting sustainable growth,” said CBK Governor Kamau Thugge.

Since December 2023, 27 of Kenya’s 39 licensed banks have met the new capital requirement. The remaining 12, primarily smaller banks with limited branch networks, now face significant pressure to recapitalize or merge with larger institutions.

“We are actively exploring strategic partnerships to meet the new capital requirements,” said an executive from an affected bank. “Mergers are also being considered.”

The CBK is expected to guide the consolidation process, as it did during the 2015-2016 banking crisis, which saw the collapse of Imperial Bank and Chase Bank. By 2027, Kenya’s banking sector is expected to be more robust and consolidated.

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