The Central Bank of Kenya’s (CBK) planned recapitalisation exercise aims to consolidate the banking sector and bolster its resilience against domestic and external economic shocks. This exercise will increase the capital base of Kenyan banks, leading to an expansion of their asset sizes.
Kenya, with 39 banks, where 9 hold 75.1% of the total market share, is considered overbanked compared to its Sub-Saharan African peers. Although Kenyan banks have maintained aggregated capital adequacy and liquidity ratios significantly above the minimum CBK requirements of 14.5% and 20%, indicating sector stability, there have been notable declines in both ratios. The aggregate liquidity ratio decreased by 5.50 percentage points between 2021 and 2023, while the aggregate capital adequacy ratio declined by 1.30 percentage points between 2021 and 2023. These declining ratios indicate lower liquidity in Kenya’s banking sector.
Financial soundness has also declined, with non-performing loan ratios increasing to 16.1% in April 2024
