Non-listed Kenyan banks stand on shaky grounds after the Central Bank of Kenya (CBK) raised the minimum core capital requirement for banks from Sh1 billion to Sh10 billion.

Given the new threshold, most of these banks will need to raise fresh capital or merge, with those already trading on the Nairobi Securities Exchange (NSE) having a significant advantage over their privately held counterparts, experts say.

According to Nairobi Securities Exchange CEO Frank Mwiti, publicly listed banks could turn to the stock market to raise funds through rights issues or attract institutional investors, both foreign and domestic, who have expressed growing confidence in Kenya’s financial sector.

“Liquidity in the market is already positioning itself for issuers and borrowers, meaning that listed banks can tap into available capital more efficiently,” he stated during a recent talk on the Trading Bell.

Fundraising avenue

CBK has also advised banks to leverage the NSE as a fundraising avenue, further reinforcing the advantage of being publicly traded.

For example, Equity Group Holdings recorded a 236 per cent gross capital gain, a testament to investor confidence in its market performance. The overall banking sector has seen a 300 per cent growth in market capitalization, driven largely by listed institutions.

Meanwhile, total banking assets have surged by 1,633 per cent, underscoring the sector’s strength over the years. These figures show the financial muscle that publicly listed banks possess, making it easier for them to meet the new capital requirements. Foreign investors have also shown interest in Kenya’s listed banks, spanning Tier 1, 2, and 3 institutions, as well as Microfinance institutions (MFIs).

This external backing provides additional support for NSE-listed banks, allowing them to scale faster and absorb smaller, struggling competitors who may not meet the new threshold.

With the CBK’s directive in place, banks that are already leveraging the NSE will have a much smoother path to compliance, while privately held institutions will be forced to explore expensive and complex capital-raising strategies. The regulatory shift will not only reshape the sector but also reaffirm the critical role of public markets in strengthening Kenya’s financial sector.

Looking at historical trends, Kenya’s banking industry has demonstrated remarkable growth. The Bank Supervision Report of 2006 recorded 45 banks with total net assets of Sh755.3 billion and profits of Sh27 billion.

With the number of commercial banks dropping to 38 in 2023, total assets have ballooned to Sh7.7 trillion, with record profits of Sh219 billion. The key players in this transformation have been publicly listed banks, whose access to market-driven capital has enabled them to expand aggressively.