Kenya’s banking sector is on the cusp of a major shift, ready to undergo one of the most significant changes in its recent history. With the Central Bank of Kenya (CBK) poised to lift its decade-long moratorium on new banking licenses by July 1, 2025, and new capital requirements taking full effect by 2026, a wave of consolidation is set to reshape the industry.
These reforms— part of the broader Business Laws (Amendment) Act 2024— are being hailed as a long-overdue modernization move by some, while others warn of their disruptive potential. Regardless of perspective, one thing is clear: the Kenyan banking sector is heading into a period of high-stakes change, innovation, and inevitable mergers.
Since 2015, the CBK has enforced a strict moratorium on the issuance of new commercial banking licenses, citing stability concerns after a turbulent period that saw the collapse of major players like Imperial Bank and Chase Bank. The decision was a protective measure intended to allow the regulator time to tighten oversight, restore confidence, and enhance resilience in the sector.
Fast forward to 2025, and the environment has matured. Governor Kamau Thugge announced that, beginning July 1, the CBK will reopen the gates for new entrants—particularly fintechs and digital-only banks—marking a pivotal moment in the evolution of Kenya’s banking ecosystem. “This move will reinvigorate competition, attract innovation, and ultimately deliver better services to Kenyan consumers,” Governor Thugge said during a recent press briefing in Nairobi.
Fintechs as the Catalyst: A New Breed of Competition
The lifting of the decade-long moratorium on new banking licenses comes at a pivotal moment, as financial technology (fintech) firms continue to redefine the global financial services sector. In Kenya, the remarkable success of platforms like M-Pesa has already demonstrated how digital solutions can revolutionize the way people transact, save, and access credit. By formally opening the door to fintech-driven digital banks, the Central Bank of Kenya (CBK) is signaling its readiness to embrace a new era— one that prioritizes innovation, accessibility, and inclusion in the financial sector.
According to Anne Kibisu, a banking analyst at Deloitte Kenya, the return of licensing will act as a catalyst for widespread innovation. “Fintechs will drive innovation in the sector, prompting traditional banks to adopt new technologies to stay competitive,” she explains. This transformation is likely to democratize financial access, especially for the unbanked and underbanked populations in rural and peri-urban areas.
Mobile-first and app-based banking services could help bridge long-standing gaps in financial inclusion by offering user-friendly, low-cost alternatives to conventional branch-based models. For many Kenyans, this could mean easier access to loans, savings products, and seamless digital payments— services that traditional banks have not always delivered efficiently or equitably.
However, the rise of fintech and digital banks is not without consequences for the existing financial order. Kenya currently has 39 licensed banks, 12 of which are already grappling with capital shortfalls and limited branch networks. The arrival of agile, tech-savvy competitors is expected to increase market pressures, exposing the vulnerabilities of smaller, less innovative banks. These incumbents now face a dual challenge: complying with stringent new capital requirements while also modernizing their operations to remain relevant in a rapidly evolving digital economy.
The Capital Rule: A Giant Leap from KES1 Billion to KES10 Billion
In tandem with licensing changes, the Business Laws (Amendment) Act 2024 introduces a new capital adequacy requirement that raises the minimum threshold from KES1 billion to KES10 billion (approximately $77 million) by 2026. The goal is to enhance the resilience of banks, enabling them to better absorb economic shocks and support long-term growth.
This is not uncharted territory. A similar policy move in 2009 raised the minimum capital from KES250 million to KES1 billion, prompting a consolidation wave that saw several mergers, including KCB Group’s acquisition of the National Bank of Kenya in 2019.
“This reform echoes past strategies but on a far more aggressive scale,” says Professor Michael Gichuru, a financial economist at the University of Nairobi. “It’s designed to ensure only robust and well-managed banks remain in the market.”
The Struggle for Survival Among Small Banks
The new capital requirements pose an existential threat to smaller banks, many of which lack the financial muscle or expansive branch networks to raise capital organically. According to the CBK, 27 out of the 39 licensed banks have already met the new capital requirements as of December 2023. The remaining 12, mainly Tier III institutions, face a combined shortfall of KES11.8 billion.
By December 2024, these banks were expected to raise at least KES3 billion each, progressing to KES6 billion in 2025, and eventually hitting the KES10 billion mark by 2026. The timeline is tight and the stakes are high.
An executive from one affected bank, speaking under the condition of anonymity, acknowledged the pressure: “We are actively exploring strategic partnerships to meet the new capital requirements. Mergers are also being considered.”
This sentiment is widely shared across the industry. Many of these smaller institutions are in discussions with larger banks or private equity firms, hoping to secure lifelines through acquisitions or capital injections.
Consolidation on the Horizon: Lessons from the Past
If history is any guide, Kenya’s banking sector is poised for another merger frenzy. The 2015–2016 banking crisis forced regulators to intervene and facilitate the collapse or absorption of several banks, including Chase Bank, which was later taken over by Mauritius-based SBM Bank.
What’s different this time is the proactive posture of the CBK. Rather than reacting to a crisis, the regulator is driving change in a more controlled environment, aiming to foster strategic consolidation instead of chaotic collapses.
“The CBK will guide the consolidation process, ensuring stability throughout the transition,” assures Governor Thugge. He added that banks unable to meet the new standards must explore mergers as a viable exit strategy.
This process is likely to create stronger, more competitive banks. However, it could also reduce the diversity of financial institutions available to niche markets, including SMEs and rural clients, unless carefully managed.
Digital Banking and Neo-Banks: The New Frontier
As the CBK reopens the licensing window, fintechs and digital-only banks are eyeing entry into a market known for its tech-savvy population. Digital banks typically operate without physical branches, offering mobile-first services, lower overheads, and better scalability. Their entry is expected to disrupt traditional models.
The challenge for legacy banks lies in adapting to this digital evolution. While institutions like Equity Bank and KCB have made significant strides in digital transformation, smaller banks may lack the resources to do the same— further incentivizing mergers or partnerships with fintechs.
“Digital-only banks can partner with legacy institutions, combining tech-driven agility with established customer bases,” says Kibisu. “We may see hybrid models emerge, blending tradition with innovation.”
Implications for Consumers and the Broader Economy
For Kenyan consumers, the unfolding transformation promises both opportunities and risks. On the positive side, increased competition could drive down fees, improve customer service, and widen financial inclusion. On the other hand, the disappearance of small community banks may reduce service options for rural and underserved populations.
From a macroeconomic perspective, the move could strengthen the financial system and position Kenya as a regional banking hub. A more consolidated, well-capitalized sector is better suited to navigate global uncertainties, including inflationary shocks, geopolitical risks, and climate-related disruptions.
“This reform aligns with the government’s long-term economic vision under Kenya Vision 2030,” notes Professor Gichuru. “A sound banking sector is critical for infrastructure financing, private sector growth, and regional integration.”
The capital rule and open-door policy have also caught the attention of regional and international investors. Private equity firms, regional banks, and global fintech companies are evaluating opportunities in Kenya’s banking sector.
“We are seeing renewed investor interest in Kenyan banks, particularly those with strong digital strategies and cross-border ambitions,” says Stella Mutua, an investment advisor at Standard Investment Bank. “M&A activity is expected to spike in the coming quarters.”
East African neighbors like Tanzania and Uganda are watching closely, with speculation that similar reforms may be introduced in their markets. Kenya’s success— or failure— in executing this reform could serve as a blueprint for the region.
Voices from the Industry
While the reforms are still unfolding, industry leaders are already strategizing. For larger banks, the focus is on acquisition opportunities, digital acceleration, and compliance. For mid-sized players, it’s a question of scaling up quickly or aligning with fintechs.
“Consolidation is not a threat—it’s an opportunity to build stronger institutions,” says John Gachora, CEO of NCBA Group. “We are open to strategic acquisitions if they align with our vision and add value to our shareholders.”
Meanwhile, some stakeholders are calling for the CBK to offer support mechanisms, such as recapitalization funds or regulatory sandboxes, to ensure smaller players can transition smoothly.
In the long run, Kenya is entering a defining era in its financial history. The combination of increased capital requirements and the end of the licensing moratorium is triggering one of the most significant shake-ups in the country’s banking sector in over a decade.
While the road ahead will be challenging, the promise of a more robust, innovative, and inclusive banking system makes this an exciting— and critical— moment for all stakeholders. The CBK’s vision of a stronger, digitally driven, and well-capitalized sector is ambitious, but with prudent oversight and strategic collaboration, it is well within reach.