Kenyan commercial banks have defied economic challenges to post a 12% increase in pre-tax profits, reaching $1.22 billion in the first eight months of 2024. This growth comes despite a decline in lending and a rise in loan defaults, highlighting the banking sector’s resilience.
Steady Gains Despite Economic Headwinds
According to data from the Central Bank of Kenya (CBK), bank profits climbed from $1.09 billion recorded during the same period in 2023. CBK Governor Kamau Thugge noted that March was the most profitable month, with $184 million in earnings, while August saw the lowest profits at $119 million—the only month to fall below $136 million in 2024.
Despite economic pressures, banks have remained stable, even as other industries struggle with disruptions caused by heavy rains, political unrest, and tight liquidity conditions.
Economic Growth Slows as Lending Declines
Kenya’s finance and insurance sector expanded by 7% in Q1 2024, though growth slowed to 5.1% in Q2, according to the Kenya National Bureau of Statistics. The CBK forecasts 6% growth for the full year, the lowest rate since 2020, when the COVID-19 pandemic disrupted the economy.
Meanwhile, private sector credit growth has plummeted to 1.3% in August, its lowest level in over five years. The total loan book for the banking sector declined to $27.2 billion by the end of August, down $1 billion from $28.2 billion at the end of 2023. This drop reflects lower lending volumes and the impact of a stronger Kenyan shilling, which has reduced the value of dollar-denominated loans.
Rising Defaults and High Interest Rates
The proportion of non-performing loans (NPLs) rose to 16.7%, the highest in 18 years, as businesses and individuals struggle with high borrowing costs. Kenya’s benchmark lending rate hit 13% in February 2024, a 12-year high, before the CBK implemented a rate cut to 12% to boost borrowing and economic activity.
In a statement, the CBK’s Monetary Policy Committee acknowledged the sharp decline in private sector credit and the overall economic slowdown. It signaled that further policy adjustments could be considered to stabilize the exchange rate and support economic recovery.
Future Outlook: A Mixed Bag for the Banking Industry
While banks continue to post strong profits, their future performance will depend on broader economic conditions, including efforts to control inflation, manage currency fluctuations, and navigate global financial trends. The sector’s ability to maintain profitability despite reduced lending suggests that alternative revenue streams, such as digital banking and transaction fees, are playing a critical role in sustaining earnings.
As Kenya’s financial landscape evolves, regulatory policies, interest rate adjustments, and technological advancements will shape the trajectory of the banking sector in the coming years.
