Commercial banks which fail to meet the revised minimum capital thresholds risk being downgraded to microfinance institutions until they mobilise the required funds.
Central Bank of Kenya (CBK) disclosures show the regulator is monitoring 11 banks, which were by the end of June needing to raise extra Sh14.7 billion to comply with the new minimum Sh3 billion core capital required by the end of December this year.
The CBK says in the banking sector stress test—an assessment of banks’ ability to withstand economic or financial shocks while remaining stable—while the 11 lenders have submitted their plans for shoring up capital, CBK stands ready with three options, including downgrading those in capital breach into micro-finance bank status.
The stress test shows CBK stands ready with the option of “downgrading such banks to microfinance banks and reinstating them upon meeting the new core capital requirements.”
The 11 lenders under additional capital raising pressure include Paramount Bank, M-Oriental, ABC Bank Kenya, Premier Bank, CIB International Bank, Middle East Bank Kenya and the Development Bank of Kenya, based on the assessment of financial statements for the quarter ending in June 2025.
Other lenders are UBA Kenya Bank, Credit Bank Plc, Access Bank Kenya and the Consolidated Bank of Kenya.
According to the stress test, the core capital gap may increase the number of banks to 12 that will require Sh19.8 billion under a severe stress scenario where the non-performing loans ratio increases to 27.4 percent.
The option of downgrading the lenders in breach presents one of the three options the regulator will be exploring.
Currently, CBK requires a minimum core capital of Sh20 million and Sh60 million for community and nationwide microfinance bank business, respectively.
The CBK document showed that the other options are extending the Sh3 billion target period for such banks or pushing for the amendment of the law to “allow tiered capital as is the practice in other mature jurisdictions to accommodate the niche market for such banks.”
The Business Laws (Amendment) Act, 2024, which was signed into law last December, requires banks to increase their minimum core capital from Sh1 billion to Sh10 billion over the next five years.
The top-up starts with an increase to Sh3 billion by the end of this year, before progressing to Sh5 billion in 2026, Sh6 billion in 2027 and Sh8 billion by 2028 and a final Sh10 billion in 2029.
Earlier this year, CBK asked 24 banks whose core capital was below the final core capital target of Sh10 billion to submit plans detailing how they intend to raise new funding to meet the new enhanced requirements.
CBK says before the April 2025 deadline for receiving the plans, 22 out of the 24 banks whose core capital was below the final target of Sh10 billion had submitted their plans.
“The plans outline strategies to raise capital, including injections, rights issues, strategic partners, mergers and organic growth.
“CBK is currently reviewing the plans in detail ahead of further engagements with the specific banks,” said the banking regulator.
