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Why banks have kept off M&As in core capital race
Kenya Bankers Association (KBA) Chief Executive Officer (CEO) Raimond Molenje makes his remarks during the release of the 2024 Banking Customer Satisfaction Report held at the Radisson Blu Hotel on February 12, 2025.
Mergers and acquisitions (M&A) are unlikely to be registered in the banking industry even as lenders race to beat a December 2025 deadline to ensure a minimum core capital threshold of Sh3 billion, a lobby has said.
At least 12 banks, mostly in the third tier, have been eyeing fresh capital all year to align with new requirements by the Central Bank of Kenya (CBK).
The Kenya Bankers Association (KBA) said that M&A deals are not anticipated in the first phase of the stagnated core capital threshold requirement.
The industry lobby, however, expects M&A deals to grow in subsequent years as the minimum capital threshold moves up; first to Sh5 billion in December 2026, Sh7 billion at the end of 2027, Sh8 billion in 2028, and Sh10 billion in 2029.
“For this year, we do not expect much movement on mergers and acquisitions because the assurance we have is that banks can individually build up to the Sh3 billion core capital requirement by December,” KBA chief executive officer Raimond Molenje said.
“Even if you want to get to the market, there is only a short window left now to negotiate. Progressively, as the threshold moves to Sh5 billion next year, we may now see M&A activity.”
Most banks will be required to seek fresh capital over the next four years following the enactment of the Business Laws (Amendment) Act, 2024, which raised the minimum core capital to Sh10 billion by December 31, 2029.
The lack of consolidation in the industry over the first year of the change implies that banks have resorted to alternative capital raising measures, including capital injection by parents and rights issues.
M-Oriental Bank is seeking to strip current shareholders of their pre-emptive rights in their bid to raise additional capital from new investors as they race to raise their core capital, which stood at Sh2.5 billion at the end of June.
The subsidiaries of foreign-owned banks, including UBA Kenya Bank, Ecobank Kenya, and CIB Kenya, have turned to their deep-pocketed parent firms for additional capital infusion to meet the higher requirements.
All 24 banks whose core-capital stood below Sh10 billion at the end of last year have since submitted detailed plans to the regulator informing how they plan to meet the higher funding threshold.
“So far, 22 of the 24 banks have submitted the plans, with two banks that are subsidiaries of foreign banks expected to submit their plans by April 30, 2025,” CBK said.
“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 specific banks.”
Eleven banks required at least Sh15 billion as of June 2024 to meet the first capital market by the end of the year.
The Consolidated Bank of Kenya faced the deepest funding hole through the first six months of the year, with its core capital at negative Sh701 million, suggesting the lender would need at least Sh3.7 billion in fresh capital to cross the Sh3 billion core capital threshold.
Other banks facing similar capital requirements included Access Bank Kenya Plc, Credit Bank Plc, UBA Kenya Bank, Development Bank of Kenya, Middle East Bank Kenya, Premier Bank Limited, ABC Bank Kenya, M-Oriental, and Paramount Bank Limited.
CIB International Bank (Kenya), which also had capital below the Sh3 billion threshold in June, has since disclosed a Sh1 billion injection from its Egyptian parent. The lenders have been under pressure to raise additional capital from retained profits, as most remain in loss-making territory, which has the effect of eroding the funding base further.
A stress test by the CBK established that lenders would struggle to raise additional capital from only retained earnings if the banks’ non-performing loans (NPLs) ratio escalates further.
“The results indicate that 12 banks in tier III may need to explore other sources beyond profit ability/retained earnings channels in line with their Internal Capital Adequacy Assessment Process (ICAAP) to raise core capital to Sh3 billion under a severe scenario based on actual core capital and profit ability for June 2025,” CBK said.
“If the scenario materializes, they will require a total of Sh19.8 billion in six months to December 2025 in additional capital to fully attain the new capital requirement. This is lower than the Sh22.5 billion estimated in January 2025.”
