NAIROBI — Kenya’s government has opened the door to new banks for the first time in a decade — but at the same time is demanding they hold far more money in reserve.
The Central Bank of Kenya this week ended a ban on licensing new banks that had been in place since 2015. It also announced higher capital requirements. By 2026, lenders must hold a minimum of 5 billion shillings (£29 million) in core capital. That figure will double to 10 billion shillings by 2029.
The two decisions mark the biggest shake-up in Kenya’s financial system in years.
“Higher capital makes banks stronger by reassuring depositors that their money is safe,” said X.N. Iraki, an economics professor at the University of Nairobi. “But raising the bar may also shut out smaller players.”
A history of turbulence
The banking freeze was introduced after a spate of failures rocked the sector. Dubai Bank collapsed in August 2015. Imperial Bank followed two months later. Then Chase Bank fell into crisis in 2016.
At the time, regulators feared more closures could destabilise the economy. The ban brought calm, but at a cost. With no new entrants, competition thinned. A handful of big lenders grew even bigger, and today nine banks control about 90 per cent of the industry’s profits.
A dynamic sector
Kenya now has 39 licensed banks, 17 of them foreign-owned. The market is vibrant and highly digitalised, with lenders tied to mobile money platforms such as M-Pesa.
KCB Group and Equity Bank, the country’s largest players, have expanded across East and Central Africa. Their reach now includes Uganda, Tanzania, South Sudan, Rwanda, Burundi and the Democratic Republic of Congo.
But critics say the sector has become too concentrated. “Banning new banks was not the best solution,” Professor Iraki said. “It stifled competition and handed dominance to a few players.”
The road ahead
Analysts believe the new rules could produce two outcomes. Large banks will grow stronger and more resilient. Smaller ones may merge or be absorbed.
The higher capital threshold may deter local entrepreneurs. But it could lure in deep-pocketed international brands. For investors, Kenya’s banks remain attractive. Most are profitable and listed on the Nairobi Securities Exchange.
The question now is whether bigger banks will serve smaller businesses and ordinary Kenyans as well as they do large corporations.
“The true test of this policy is whether it drives faster economic growth and better living standards,” Professor Iraki said. “If it does not, then we will have missed the point.”
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