12 banks face merger over Sh20b capital crunch
Financial Standard
By
Brian Ngugi
| Sep 09, 2025
Up to a dozen Kenyan banks face mergers, acquisitions or collapse unless they raise a collective Sh19.8 billion in capital by year-end, a new report by the Central Bank of Kenya (CBK) has indicated.
The warning, outlined in the CBK’s latest Financial Sector Stability Report, marks the most significant threat to the country’s banking industry since the failures of Imperial Bank and Chase Bank in 2015-2016.
The situation is expected to reshape the landscape for smaller lenders. The newly published CBK report shows 11 banks were already operating with core capital below the new Sh3 billion threshold as of June 2025.
The CBK’s stress testing indicates this number could climb to 12 under a severe economic downturn.
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The new capital requirement is the first phase of a broader reform backed by the Kenya Kwanza administration under the Business Laws (Amendment) Act, 2024, which aims to increase all commercial banks’ core capital to a minimum of Sh10 billion by December 2029.
“By June 2025, 11 banks had core capital of less than Sh3.0. billion, that takes effect December 2025 under the Business (Amendment) Laws 2024. Therefore, before applying any shock scenario, these banks require additional Sh14.7 billion to fully comply with the new capital requirement,” said the CBK report.
“Applying a severe stress scenario where NPLs increase by 27.4 per cent, twelve banks may not meet the new capital requirement. These banks would need Sh19.8 billion in additional capital to meet the new capital requirement by December 2025.”
CBK reckons the concentration in the banking sector following possible mergers or exits may lead to higher costs for financial services for ordinary Kenyans and reduced innovation, potentially harming financial inclusion.
This is because lenders which fail to raise new capital to meet the heightened regulatory requirements could be forced to merge or be liquidated, a move that risks leaving certain customer segments underserved.
“Banks that are not able to raise additional capital, especially with tight financial conditions, may be forced to merge or be wound up, leaving the niche segments either underserved or excluded in the banking sector,” said CBK.
“Sectoral concentration has a tendency of increasing the cost of financial services and underinvestment in infrastructure.”
The CBK has given non-compliant banks a narrow set of options to avoid being wound up or forced into mergers. These include raising capital or mergers.
Banks can issue new shares to existing shareholders or attract new domestic and international investors.
Weaker banks can also merge with stronger institutions to create a larger, more stable entity.
In a potential regulatory intervention, CBK indicates it may consider “downgrading such banks to microfinance banks and reinstate them upon meeting the new core capital requirements,” the CBK said.
“The bank may stand ready with options of: (i) downgrading such banks to microfinance banks and reinstating them upon meeting the new core capital requirements; (ii) consider extending the Sh3 billion target period for such banks or (iii) consider amending the law to allow tiered capital as is the practice in other mature jurisdictions to accommodate the niche market for such banks,” wrote CBK.
This would allow struggling commercial banks to continue operating at a smaller scale.
The CBK noted that despite the risks facing individual institutions, the overall banking sector remains “stable and resilient,” with a healthy core capital adequacy ratio of 19.6 per cent as of December 2024, well above the 14.5 per cent regulatory minimum.
The pressure is, however, most acute for small-sized (Tier III) banks, which have the highest levels of non-performing loans and the lowest profitability.
The CBK cautioned that geopolitical tensions, global trade protectionism, and high domestic credit risks could still undermine economic recovery and worsen the capital shortfall for vulnerable banks.
The coming months will be a critical test for Kenya’s banking sector, which is poised for its first major consolidation in a decade.