Central Bank of Kenya. Photo | courtesy.
The Central Bank of Kenya (CBK) has announced a phased enforecement of increase in minimum core capital requirements.
The directive mandates banks to elevate their core capital from the current Sh1 billion to Sh10 billion by December 2029, compelling many institutions to prioritize capital retention over dividend distributions.
The CBK’s move, formalized through the Business Laws (Amendment) Act, 2024, outlines a structured timeline: banks are expected to reach Sh3 billion by the end of 2025, Sh5 billion by 2026, Sh7 billion by 2027, Sh8 billion by 2028, culminating in the Sh10 billion target by 2029.
This initiative aims to fortify the banking sector’s resilience against economic shocks and align financial standards with regional counterparts.
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As of December 2024, several banks, including Access Bank Kenya, Consolidated Bank, and Middle East Bank, had not met the interim Sh3 billion capital threshold. In total, 13 banks have been prompted by the CBK to present detailed strategies on achieving the stipulated capital benchmarks.
While 22 out of 24 affected banks have submitted their compliance plans, many are leaning towards profit retention and rights issues as primary methods to bolster their capital bases. This will result in freezing of dividents payment.
Larger financial institutions such as KCB Group, Equity Bank, Co-operative Bank, and Absa Bank have already surpassed the Sh10 billion capital requirement, positioning them favorably to continue dividend payouts.
However, these banks may need to inject additional capital into their subsidiaries to ensure group-wide compliance. Fitch Ratings has highlighted that while mid-sized banks might achieve the targets through retained earnings, smaller banks, representing approximately 7 percent of sector assets, could struggle without external capital infusions.
Parent companies like Ecobank and Access Bank are anticipated to provide crucial support to their Kenyan subsidiaries.
The CBK’s capital enhancement strategy is expected to catalyze consolidation within the banking sector, potentially leading to mergers and acquisitions, especially among smaller lenders. This development coincides with the CBK’s decision to lift the moratorium on licensing new commercial banks, effective July 1, 2025.
