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Eleven commercial banks could face downgrades if they fail to meet tougher core capital requirements set by the Central Bank of Kenya (CBK).
The warning comes as regulators push to strengthen the resilience of the banking sector ahead of a December 2025 deadline.
According to CBK’s Financial Sector Stability Report 2024, the Business (Amendment) Act, 2024, raised the minimum core capital for banks from Sh1 billion to Sh3 billion by the end of 2025.
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CBK Governor Kamau Thugge during a past media interview
Stress tests conducted by CBK show that as of June 2025, 11 banks still had core capital below this threshold, collectively needing an additional Sh14.7 billion to comply.
The situation could worsen under a severe economic downturn. The report warns that if non-performing loans (NPLs) rise by 27.4%, a realistic scenario given recent credit trends, up to 11 banks would fail to meet the new requirement, with a funding gap of nearly Sh19.8 billion.
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Why It Matters
The push to raise capital buffers is aimed at shielding Kenya’s financial system from shocks, including rising defaults, cyber risks, and external economic pressures.
Higher capital is expected to enhance banks’ ability to lend to households and businesses while reducing systemic risks.
However, CBK acknowledges that the reforms carry risks of their own.
Smaller banks that cannot raise fresh capital may be forced into mergers or face possible closure.
Analysts caution this could increase concentration in the sector, making it less competitive and potentially raising the cost of financial services.
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The Central Bank of Kenya (CBK)
Next Steps
Most of the affected banks have submitted internal capital adequacy plans outlining strategies such as rights issues, seeking strategic investors, or mergers to bridge the gap.
CBK says it is reviewing these plans closely before further engagements with the institutions.
The regulator insists the capital reforms are crucial for long-term stability.
“While the short-term impact may challenge smaller lenders, stronger capital bases will ensure banks can effectively intermediate funds and support national development projects,” the report notes.
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The Bigger Picture
Kenya’s banking sector remains broadly profitable and resilient, with average capital ratios well above the statutory minimum.
But the uneven distribution of capital across institutions leaves weaker lenders exposed.
By 2029, CBK plans to raise the minimum core capital further to Sh10 billion, setting the stage for even greater consolidation in the industry