Kenya’s May 2025 banking sector stress test highlights a fragile balance between improved resilience and persistent risks.

Projections place the sector’s NPLs at 16.3% under a baseline scenario by December 2025, but in a severe case the ratio could hit 21.2%. A 27.4% surge in NPLs would push six banks below the regulatory 10.5% Core Capital Adequacy Ratio (CAR), requiring KSh 5.1 billion in fresh capital.

Sectoral pressures are concentrated in Real Estate, Trade, Transport & Communications, and Personal & Household loans. Concentration risk is also significant.

Defaults by the top three borrowers in each bank would trigger a capital shortfall of KSh 220.7 billion, with Tier I banks accounting for 86% of the exposure.

Capital Adequacy at Risk

Meeting the new KSh 3 billion core capital requirement is a major challenge for some banks. By June 2025, 11 banks were below the threshold, needing KSh 14.7 billion to catch up. Under severe stress, 12 banks may fail, requiring KSh 19.8 billion.

Adjustments for full provisioning show four banks dropping below the CAR minimum, with KSh 2.3 billion needed to close the gap.

Operational risks are growing. Stress tests assumed a 5% chance of successful cyber-attacks. Losses are estimated at KSh 32.8 million under the baseline, KSh 2.1 billion under a moderate scenario, and KSh 2.9 billion in a severe case.

Five banks would fall below the CAR minimum in the worst case, requiring KSh 2.4 billion. These banks overlap with those already at risk from credit shocks.

The CBK notes the sector is more resilient than in 2024. Fewer banks would fail stress scenarios and the capital needed to plug gaps has fallen. Still, Tier II and III banks remain vulnerable. The CBK recommends:

The combination of elevated NPLs, weak lending growth, and new capital thresholds will continue to test Kenya’s banks through 2025. The pressure is most acute for smaller lenders, where capital shortfalls and rising operational vulnerabilities could threaten stability.