Central Bank of Kenya Governor Kamau Thugge. Photo | Kenya Banking Insights.
The Central Bank of Kenya (CBK) has written to 13 banks, requesting them to outline their plans for progressively increasing their core capital to Sh3 billion this year and Sh10 billion by 2032.
Speaking during a virtual post-Monetary Policy Committee (MPC) media briefing on Thursday, CBK Governor Kamau Thugge confirmed the directive but did not disclose the names of the banks.
“We have written to 13 commercial banks with core capital below Sh3 billion, asking them to not only explain how they will meet this year’s requirement but also provide a detailed plan on achieving the minimum Sh10 billion capital in the long run,” Thugge stated.
The move follows the enactment of the Business Laws (Amendment) Bill late last year, which revised multiple laws, including the Banking Act (Cap 488), the Central Bank of Kenya Act (Cap 491), and the Microfinance Act (Cap 493C), to enhance the strength of the country’s banking sector.
Since 2012, commercial banks have maintained a minimum core capital of Sh1 billion after a 2015 attempt to increase it to Sh5 billion failed.
According to the latest banking supervision report, 11 banks, including Bank of Africa, Premier Bank, Habib Bank, M-Oriental Bank Kenya, Credit Bank, Paramount Bank, Development Bank, HFC, UBA, Middle East Bank and Access Bank, failed to meet the Sh3 billion core capital threshold required by the end of this financial year.
Additionally, Consolidated Bank and Spire Bank—now acquired by Equity Bank Holdings—fell short of the current minimum requirement of Sh1 billion.
In neighboring Uganda, the minimum capital requirement was recently raised to Sh5.1 billion, leading to downgrades for several banks, including Kenya’s ABC Capital Bank.
Meanwhile, commercial banks slightly reduced non-performing loans (NPLs) to 16.4 per cent, down from 16.5 per cent in November and 16.7 per cent in September 2024. This decline reflects borrowers’ improved ability to meet loan obligations, supported by a stable currency and easing credit rates.
This marks a significant improvement from the previous year when gross NPLs neared 18 per cent, driven by a sharp depreciation of the shilling against major currencies and rising inflation, which nearly reached double digits.
Kenya’s overall inflation rose slightly to 3.3 per cent in January 2025, up from 3.0 per cent in December 2024, but remained below the midpoint of the target range of 5±2.5 per cent.
Core inflation declined to 2.0 per cent in January from 2.2 per cent in December, indicating subdued demand pressures in the economy. This decline was primarily driven by lower prices of processed food items, including sugar, maize and wheat products.
The reduction in the non-performing loan (NPL) ratio is also linked to easing lending rates, with the Central Bank further lowering the base rate by 50 basis points to 10.75 per cent on Wednesday.
The Central Bank of Kenya (CBK) expects the recent drop in the Central Bank Rate (CBR) to further reduce the average commercial lending rate in the coming months from the current 16.9 per cent, down from 17.2 per cent in December 2024.
To complement the CBR reduction and support lower lending rates, the CBK also cut the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 per cent from 4.25 per cent, aiming to enhance cash flow to the private sector.
