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The Central Financial institution of Kenya (CBK) plans to elevate its 10-year ban on issuing new banking licenses on July 1.
This alteration will open the market to fintechs and digital banks, which is anticipated to extend market competitors and, probably, financial institution consolidations as small banks are pressured to merge or exit the business.
“Fintechs will drive innovation within the sector, prompting conventional banks to undertake new applied sciences to remain aggressive,” says Anne Kibisu, a banking analyst at Deloitte Kenya.
New and current banks will face new capital necessities enacted in December 2024 below the Enterprise Legal guidelines (Modification) Act 2024. By 2026, banks shall be required to keep up KES10 billion ($77 million) in capital.
This growth follows an identical capital enhance in 2009, when the requirement was raised from KES250 million to KES1 billion. That change prompted mergers, together with KCB’s acquisition of Nationwide Financial institution in 2019. Analysts predict an identical wave of consolidation as smaller banks wrestle to fulfill the brand new capital targets.
The central financial institution studies that 12 banks face a mixed capital shortfall of KES11.8 billion. To adjust to the brand new necessities, these banks wanted to lift KES3 billion by December 2024, KES6 billion this yr, and ultimately KES10 billion by 2026.
“These elevated capital thresholds are designed to assist banks take in financial shocks and proceed supporting sustainable development,” mentioned CBK Governor Kamau Thugge.
Since December 2023, 27 of Kenya’s 39 licensed banks have met the brand new capital requirement. The remaining 12, primarily smaller banks with restricted department networks, now face vital strain to recapitalize or merge with bigger establishments.
“We’re actively exploring strategic partnerships to fulfill the brand new capital necessities,” mentioned an govt from an affected financial institution. “Mergers are additionally being thought-about.”
The CBK is anticipated to information the consolidation course of, because it did in the course of the 2015-2016 banking disaster, which noticed the collapse of Imperial Financial institution and Chase Financial institution. By 2027, Kenya’s banking sector is anticipated to be extra sturdy and consolidated.