The banking sector is arguably the pulsating heart of any economy in the globe. When it is pumping sturdily, private credit flows, businesses thrive, and jobs are created. When it wavers, the entire economic system could suffer a cardiac arrest.
This is why the Central Bank of Kenya’s (CBK) directive instructing a 10-fold increase in core capital, from Sh1 billion to Sh10 billion by 2029, was not a mere regulatory annoyance but a very important operation.
Under the Business Laws (Amendment) Act, Kenyan banks face progressive targets under a staggered five-year plan: Sh3 billion by 2025, Sh5 billion by 2026, Sh7 billion by 2027, Sh8 billion by 2028, and Sh10 billion by 2029. Whereas most tier-1 and 2 banks are already compliant, several mid-tier lenders are still racing to meet the first threshold.
However, during the 2026/27 Budget Statement on June 11, 2026, National Treasury CS John Mbadi introduced two amendments. First, the final deadline was extended from 2029 to 2032. Second, and more consequentially, the phased annual milestones were cancelled entirely. Banks now have until December 31, 2032 to meet the Sh10 billion target with no intermediate checkpoints. Notably, this came just one day after CBK Governor Kamau Thugge had publicly declared no extensions would be granted.
I disagree with the new approach. The extension and, more specifically, the removal of the staggered approach is a temporary reprieve, not a solution. The obligation has not disappeared but has merely been deferred. What the progressive framework offered was urgency and accountability.
Annual milestones forced banks’ executives and boards to confront capital shortfalls year after year. Without those targets, there is a real risk that banks will procrastinate, and by 2032 Kenya will face the same structural weaknesses compounded by years of inaction. A problem deferred is a problem magnified.
Larger, better-capitalised banks are more resilient, more capable of absorbing shocks, and better positioned to support economic growth. The panacea is not to slow down capitalisation but to accelerate consolidation through more mergers and acquisitions. The staggered approach was the most effective regulatory mechanism to push banks in that direction. I dare argue that its removal is a missed opportunity.
Some critics call this guidance an overkill that will force smaller banks to fold or consolidate. But the reality is harsh: capital adequacy is one of the most critical parameters for financial stability. Under the CAMELS framework, the ‘C’ is incontrovertible.
Capital acts as the loss absorption buffer, protects depositors, reduces contagion, and allows banks to lend through economic cycles. By raising the minimum capital, the CBK is eliminating the weakest links, as was experienced in the 2008 global financial crisis.
This effort is not unique to Kenya. Nigeria recently concluded a 24-month recapitalisation process, raising its minimum capital base for international banks to 500 billion naira.
South Africa maintains strict Basel III requirements with a CET1 ratio of 12.5 percent, far above the global minimum. Ghana raised its capital requirement to GHS 400 million in 2017, causing consolidation of several indigenous banks. The lesson is universal: you cannot hedge a robust economy on a wobbly banking footing.
CBK’s threshold of Sh10 billion is actually more conservative than Basel III requirements. CBK has insisted on an absolute number to ensure even banks with smaller balance sheets that could technically be compliant but remain operationally fragile are addressed.
The call to action is that banks ought to be enthusiastic. For smaller banks, this means seeking strategic investors, merging, or accepting acquisition. For larger banks, this is an opportunity to acquire solid branches and customer bases.
The alternative which could be a bank run, receivership, or a KDIC payout is expensive for everyone. A well-capitalised banking sector is a competitive advantage. It tells foreign investors that Kenya is safe. It tells depositors that their savings are secure.
The writer is a PhD holder, a scholar, a financial expert/banker.
