Kenya’s banking sector remains resilient, supported by steady economic growth, strong capital buffers, and gradually improving asset quality.
Moody’s Ratings reaffirmed a stable outlook in its February 2026 report, noting “steady macroeconomic conditions, solid capital buffers and gradually improving asset quality.”
The Central Bank of Kenya (CBK) echoed this assessment, stating:
“The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 15.5 percent in January 2026, down from 16.7 percent in October 2025 and 17.6 percent in August 2025.”
Asset Quality: Signs of Improvement
Moody’s projects the sector-wide NPL ratio to decline toward 15% over the next 12–18 months, supported by lower interest rates and stronger borrower performance. CBK confirmed that decreases in NPLs were already evident in real estate, manufacturing, trade, construction, and household lending. Banks have continued to make adequate provisions, strengthening resilience against credit risk.
Lending Growth: Recovery Across Key Sectors
Private-sector credit growth is rebounding. CBK reported lending growth of 6.4% in January 2026, up from 5.9% in December 2025 and a contraction of -2.9% a year earlier.
Growth was strongest in building and construction, trade, and consumer durables, reflecting improved demand amid declining lending rates. Average commercial bank lending rates fell to 14.8% in January 2026, down from 15.0% in October 2025 and 17.2% in November 2024.
Moody’s expects continued recovery in trade, real estate, construction, and manufacturing — sectors that account for two-thirds of private-sector credit.
Capitalisation: Strong Buffers, Rising Requirements
Kenyan banks remain well-capitalised, with Tier 1 capital ratios projected above 17%. Moody’s noted that “rising minimum capital requirements will accelerate consolidation,” particularly among smaller lenders. The phased increase to KES 10 billion for large banks and KES 1 billion for smaller banks will likely reshape the sector, creating fewer but stronger institutions.
Profitability is expected to soften from its 2025 peak but remain strong by regional standards. Moody’s estimates pre-tax return on assets at 3.6% in 2025, supported by high lending rates and elevated yields on government securities. Non-interest income, which accounted for 35% of total income in 2024, will continue to bolster performance.
Policy and Risk Management: Enhancing Transparency
CBK highlighted reforms to strengthen monetary policy transmission. The Monetary Policy Committee noted that the revised Risk-Based Credit Pricing Model (RBCPM), set to be fully operational by March 2026, “will improve the transmission of monetary policy decisions to commercial banks’ lending interest rates, and enhance transparency in the pricing of loans.”
Both Moody’s and CBK agree that Kenya’s banking sector is positioned to withstand fiscal pressures, political risks ahead of the 2027 elections, and evolving credit dynamics. Strong liquidity, capital adequacy, and improving asset quality provide a solid foundation for resilience.
