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Post Reply: Eleven Kenyan Banks Face License Revocation Over Capital Shortfalls

<blockquote><div class="quotetitle">Quote from <a class="profile-link highlight-moderator" href="https://lawguide.co.ke/understanding-law/legal-forum/profile/lawyer/">Lawyer</a> on September 3, 2025, 10:00 am</div><div id="pl-7835"  class="panel-layout" ><div id="pg-7835-0"  class="panel-grid panel-no-style" ><div id="pgc-7835-0-0"  class="panel-grid-cell"  data-weight="1" ><div id="panel-7835-0-0-0" class="so-panel widget widget_sow-editor panel-first-child panel-last-child" data-index="0" data-style="{&quot;background_image_attachment&quot;:false,&quot;background_display&quot;:&quot;tile&quot;,&quot;background_image_size&quot;:&quot;full&quot;,&quot;background_image_opacity&quot;:&quot;100&quot;,&quot;border_thickness&quot;:&quot;1px&quot;}" ><div
			
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	<p dir="ltr" data-pm-slice="1 1 []">The Central Bank of Kenya (CBK) has issued a stern warning to eleven commercial banks, stating they risk losing their operating licenses unless they raise a combined Ksh15 billion in core capital by December 2025. This directive follows new regulatory requirements introduced under the Business Laws (Amendment) Act of 2024, which mandates banks to meet a minimum core capital threshold of Ksh3 billion by the end of 2025, a significant increase from the previous Ksh1 billion requirement. The CBK's intensified oversight reflects its commitment to ensuring the banking sector's resilience amid growing financial risks.</p>
<p dir="ltr">The banks identified as falling short of the new capital requirements include Paramount Bank, M Oriental, ABC Bank Kenya, Premier Bank, CIB International Bank, Middle East Bank Kenya, Development Bank of Kenya (DBK), UBA Kenya Bank, Credit Bank PLC, Access Bank Kenya, and Consolidated Bank of Kenya. Among these, the state-owned Consolidated Bank of Kenya faces the largest shortfall, with a deficit of Ksh3.7 billion, which worsened from Ksh643.8 million to Ksh701 million in a single quarter ending June 2025. The CBK's assessment of financial statements for the same period revealed these institutions are struggling to comply with the heightened capital standards.</p>
<p dir="ltr">The Business Laws (Amendment) Act of 2024 has set a long-term goal for banks to achieve a core capital of Ksh10 billion within five years, with the Ksh3 billion mark serving as the first milestone by December 2025. This reform aims to bolster the banking sector's stability and protect depositors by ensuring institutions are well-capitalized to withstand economic shocks. CBK Governor Dr. Kamau Thugge emphasized the necessity of these measures, stating that the banking sector faces significant risks that require a robust capital base to mitigate. He noted that 24 out of Kenya’s 38 commercial banks currently have core capital below the Ksh10 billion target and have been instructed to submit board-approved capital buildup plans by April 1, 2025, outlining specific measures, timelines, and milestones to meet the new requirements.</p>
<p dir="ltr">The capital crunch has been exacerbated by ongoing financial losses reported by several banks in the first half of 2025, further eroding their funding bases. In response, some institutions are taking proactive steps to address the shortfall. For instance, UBA Kenya Bank is seeking additional capital from its parent company, United Bank for Africa (UBA) PLC in Nigeria. At least two other banks have approached the CBK for approval to sell stakes to potential investors, while others, particularly subsidiaries of foreign institutions, are relying on cross-border support to stabilize their operations. These efforts reflect the urgency to comply with the CBK’s stringent requirements and avoid license revocation.</p>
<p dir="ltr">The CBK’s actions are part of a broader push to strengthen Kenya’s banking sector through stricter governance, risk management, and capital adequacy standards. In 2024, the CBK fined eleven banks for breaches in lending, capital, and governance rules, with nine institutions cited for lending more than 25 percent of their core capital to a single borrower, violating the single obligor rule. Three banks were also penalized for excessive insider lending and breaches of ownership caps, while others failed to meet the minimum 20 percent liquidity ratio. These violations prompted the CBK to collect Ksh191 million in penalties during the financial year ending June 2024, underscoring its commitment to enforcing compliance.</p>
<p dir="ltr">Additionally, the CBK has tightened regulations on digital lenders, reducing the number of approved digital credit providers to just over 50 through a strict licensing regime focused on consumer protection and responsible lending. The regulator has also introduced initiatives such as the revised Risk-Based Credit Pricing Model (RBCPM), the Kenya Green Finance Taxonomy (KGFT), and the Climate Risk Disclosure Framework (CRDF) to enhance transparency, promote sustainable finance, and strengthen the sector’s resilience against climate-related risks.</p>
<p dir="ltr">The CBK’s regulatory crackdown coincides with efforts to stimulate lending by lowering the Central Bank Rate (CBR) from 13 percent in February 2024 to 9.75 percent in June 2025. This monetary easing aims to reduce borrowing costs and encourage credit growth, which rose by 2 percent in May 2025 compared to a contraction of 2.9 percent in January 2025. However, banks have been slow to pass these lower rates to borrowers, prompting the CBK to enforce stricter lending and capital rules to ensure cheaper credit reaches businesses and households.</p>
<p dir="ltr">The banking sector’s challenges are compounded by broader economic difficulties, including a fiscal deficit and recent protests over proposed tax increases in the Finance Bill, which aimed to reduce Kenya’s budget deficit from 5.6 percent of GDP in 2023/2024 to 3.3 percent in 2024/2025. These pressures have heightened credit risks, with seven out of ten listed banks reporting deteriorating asset quality in Q1 2025 due to reduced lending and elevated default risks.</p>
<p dir="ltr">The CBK’s decision to lift a decade-long moratorium on new commercial bank licenses, effective July 1, 2025, signals confidence in the sector’s improved regulatory framework. However, the increased capital requirement of Ksh10 billion for new entrants underscores the regulator’s focus on ensuring only financially robust institutions operate in Kenya’s banking market. For the eleven banks at risk, the next few months will be critical as they scramble to raise capital, restructure operations, or secure investor support to meet the December 2025 deadline. Failure to comply could lead to severe consequences, including license revocation, which would further shake public confidence in the sector.</p>
<p dir="ltr">As Kenya’s banking industry navigates these challenges, the CBK’s rigorous supervision and reforms aim to foster a more resilient and competitive financial system, capable of supporting economic growth and financial inclusion while mitigating systemic risks.</p>
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