The cumulative pre-tax profit for Kenya’s commercial banks in the four months ended April rose 13.8 percent, riding on loan book growth, signalling another lucrative year for the banking sector.
Data from the Central Bank of Kenya (CBK) shows that the lenders’ pre-tax earnings in the review period stood at Sh111.8 billion, rising from Sh98.2 billion a year earlier. The performance is limited to the banks’ operations in the Kenyan market.
The lenders’ loan book grew by 9.37 percent to Sh4.5 trillion from Sh4.1 trillion, allowing banks to record higher interest income.
This is the fastest credit growth recorded by the sector in the last two years following deliberate actions by the Central Bank of Kenya (CBK) pressurising banks to lower their lending rates.
“Banks are really making the most of lower funding costs and benefiting from more income sources. They’re growing their balance sheets, too, thanks to growing private-sector credit and investments in government securities,” said Melodie Ndanu, a research analyst at Standard Investment Bank.
Banks have been quick to cut the interest they pay for deposits at a faster pace than they are reducing the prices of loans to ensure they not only protect their margins but widen them resulting in higher profit.
In the three months to March, Kenya’s listed banks (including regional operations) cut their interest expenses by 12.8 percent while interest income grew by three percent, signalling a faster pace of cutting deposit rates than reducing lending rates.
The drop in lending rates has been accompanied by a decline in non-performing loans which were 15.4 percent of total loan book, standing at Sh693.9 billion at the end of the four months compared to 17.5 percent or Sh724.2 billion a year earlier.
The improved quality of the loan book has allowed banks to cut back on provisions for bad debts, further improving their profit levels. Provisions for bad loans are deductible expenses by banks.
BANKING SECTOR BY GEORGE NGIGI
The cleaner balance sheet follows aggressive collection including auction of collateral by banks, conclusion of court cases between bankers and large corporates regarding defaulted loans and a decision by lenders to write-off bad debts they didn’t expect to recover.
Customer savings with banks rose by 14 percent or Sh805.9 billion to Sh6.52 trillion which was faster than growth in lending. This means banks invested more in lending to the government over the review period than lending to the private sector.
Treasury bills and bonds have been a good investment option for banks in a period when they have been offering high single to double digit returns with no risk. Banks are also expected to reap from diversifying their business to other revenue streams such as bancassurance, wealth management and regional subsidiaries for those that have expanded beyond the Kenyan borders.
“Income from diversified revenue streams such as wealth management has been growing while uptake of digital channels has lowered operating expenses,” said Ms Ndanu.
The growth in the first four months signals another bumper year for Kenya’s commercial banks which posted a record Sh311.8 billion pre-tax profit last year despite reporting a 2.3 percent increase in the first four months in 2025 compared to 2024.
This performance has attracted investors to the banking counters on the Nairobi Securities Exchange resulting in huge gains with the 12 listed banks recording a 71 percent jump in overall valuation to Sh1.62 trillion in the last 12 months.
The growth has also triggered big-ticket deals in the sector such as the ongoing 66 percent acquisition of NCBA Group by South Africa’s Nedbank Group in a cash and stock deal valued at Sh110 billion.
Other transactions include the purchase of Paramount Bank by Nigeria’s Zenith Bank while Absa Group of South Africa intends to increase its shareholding in Absa Bank Kenya to 85 percent from current 68.5 percent at an estimated cost of Sh30.9 billion.
The unpredictability of the US-Iran war however casts a dark shadow on the sector with American President Donald Trump announcing the end of the ceasefire and launching missile attacks on the Middle East nation.
Resurgence of the war is likely to result in inflationary pressures from price of fuel which could force households to prioritize basic needs over loan repayments leading to rise in non-performing loans.
Rising inflation will also trigger interest rate hikes dampening CBKs efforts to push for growth of private sector credit.
