2024 Kenya Banking Industry Report

Overview of the Report

Theme: “Innovating for growth amidst capitalization requirements in Kenya”

The Kenyan Banking Industry (“the Industry”) has continued to demonstrate resilience over the last three years despite the ongoing macroeconomic challenges in the Country and plays a crucial role in Kenya’s economy, which is the largest in the East African region with a real Gross Domestic Product (GDP) of Kshs 10.4 trillion (US$ 108.1 billion) in 2023. As of 30 June 2024, the Banking Industry’s total assets stood at Kshs 7.6 trillion, marking a 7.1% year-on-year rise on the back of an enlarged deposit base and expanded shareholders’ funds. The Industry continues to evolve, navigating technological advancements, shifting consumer expectations, and regulatory updates. Digital transformation, artificial intelligence (AI) integration, and customer-centric innovations remained pivotal in reshaping operations and enhancing efficiency. Despite the Industry’s remarkable growth, there are still notable opportunities which include mergers and acquisitions, expansion into bancassurance, and the development of sustainable finance products tailored to SMEs.

The recent proposal by the Central Bank of Kenya (CBK) to raise the minimum capital requirement from Kshs 1 billion to Kshs 10 billion highlights the focus on building stronger banks capable of withstanding economic shocks and financing larger projects. The implementation of this initiative was proposed over three years for banks to comply with the revised capital requirements. With only 16 of 39 banks currently meeting this threshold, Agusto & Co. notes that the directive may spur consolidations, license downgrades, or exits for smaller institutions and this has elicited national parliamentary considerations with a review of the period likely to be extended to aid full compliance. Going forward, the Banking industry is projected to experience moderate growth in 2025, supported by a stabilizing economy and ongoing innovation. Loan advances are expected to grow circa 17% in the near term, largely driven by demand in the service and agriculture sectors. Enhanced customer engagement and a stable macroeconomic environment are set to sustain this growth trajectory in the near term.

Key excerpts from the 2024 Kenya Banking Industry Report.

• The Banking Industry’s average lending rate is projected to moderate to circa 12.5% in 2025 (2023: 13.6%), supported by the gradual decline in the Central Bank Rate (CBR), which stood at 11.25% in December 2024.
• The Industry’s net interest spread (NIS) is expected to stabilize at 63.4% by the end of 2024 and 63.2% in 2025 attributed to banks optimizing their asset-liability management strategies, and focusing on cost-efficient operations.
• Non-performing loans (NPLs) are expected to improve to 12% by FYE 2025 (2023: 13.9%) as banks refine their risk assessment processes while leveraging digital credit scoring tools aimed at enhancing loan performance.
• Kenyan banks are aligning with sustainability goals following the CBK’s release of the draft Green Finance Taxonomy in March 2024. This framework, central to Vision 2030, will help classify green assets and projects, guiding sustainable investments and managing environmental risks.

Coverage of the 2024 Kenya Banking Industry Report