Last year, Kenya’s banking sector remained well-capitalized and strongly positioned to support economic growth even as some lenders continued to face the pressure to raise their minimum core capital to Sh3 billion up from Sh1 billion as per Central Bank of Kenya’s fresh rules.
Latest data from the Kenya Bankers Association (KBA) dubbed the State of the Banking Industry Report 2025 shows the lucrative banking sector maintained capital adequacy ratios well above regulatory requirements in 2024.
The banking sector’s resilience and capacity to finance “inclusive development” was triggered by a sustained growth in total operating income in 2024, recording Sh990.46 billion, up from Sh895.3 billion in 2023.
Interest income from loans and advances was the main contributor, accounting for approximately 51.4 percent of the total operating income in 2024, up from 48.7 percent in 2023 thanks to higher lending rates.
Additionally, income from government securities came in second at 24.9 percent as fees and commission income came in third, contributing about 11.2 percent in 2024, down from 12.3 percent in the previous year. Income from foreign exchange gains and interest on placements and bank balances remained modest in 2024, contributing just 6 percent and 3.8 percent of total operating income, respectively.
The KBA report also reveals that the Total Capital-to-Risk Weighted Assets ratio stood at 19.7 percent in 2024, against a regulatory minimum of 14.5 percent, while the Core Capital-to-Risk Weighted Assets ratio stood at 17.4 percent, comfortably above the 10.5 percent threshold.
“This strong capital base, coupled with stable liquidity levels, positions banks to expand lending sustainably in support of households, businesses, and the wider economy,” the report says.
According to KBA’s Chief Finance Officer Kennedy Mutisya indeed the year 2024 underscored the resilience of Kenya’s banking sector and its capacity to play a catalytic role in the country’s economic transformation.
“Strong capitalization, robust liquidity, and enhanced efficiency demonstrate that banks remain well-positioned to support credit expansion, digital innovation, and inclusive growth. At the same time, we must continue addressing asset quality pressures to ensure sustainable financial intermediation,” says Mutisya.
The report highlights significant progress in digital transformation, with the modernization of payments systems, including the adoption of the ISO 20022 messaging standard and the development of a nationwide Fast Payment System, positioning Kenya as a leading regional financial hub.
While challenges such as elevated non-performing loans and increased funding costs remain, the banking sector carves a more stable system, one that is well-governed, and capable of sustaining shareholder value while supporting national development priorities.
The state of the banking industry report provides a comprehensive assessment of the sector’s performance, regulatory developments, and macroeconomic context, serving as a key reference for policymakers, investors, and the wider public.
Despite Kenya’s entire economy being under intense pressure, large banks recorded an average net interest margin (NIM) of 7.94 percent, slightly higher than the industry average due to their ability to command more competitive lending rates and access lower cost deposits.
Medium-sized banks posted a NIM of 5.91 percent, while small banks experienced a marginal dip to 5.50 percent in 2024, reflecting their vulnerability to rising funding costs and constrained re-pricing power.
“At the industry and across bank sizes, the net interest margin (NIM) dynamics in 2024 reflected a complex interplay between rising funding costs and constrained asset returns. On the funding side, interest expenses rose sharply in 2024, driven by higher deposit rates following the monetary policy tightening,” KBS says in the 2025 report.
Conversely, on the asset side, a contraction in the loan book constrained the interest earning base. At the same time, while a reallocation from government securities to private sector credit presented opportunities for higher yields, this shift was moderated by elevated credit risk concerns, leading banks to adopt more cautious pricing strategies.
The sector also saw an acceleration in digital transformation and payments modernization, with the adoption of the ISO 20022 messaging standard, progress towards development of a nationwide Fast Payment System (FPS) and the licensing of at least 85 Digital Credit Providers (DCPs). However, the sector faced headwinds in 2024 on the back of slowing economic growth, sectoral contractions, and weaker loan demand.
Kenya’s GDP growth was up by 4.7 percent in 2024 compared to 5.7 percent in 2023. The external sector improved, with a Sh176.7 billion surplus driven by exports and remittances. Fiscal challenges persisted despite better revenue performance.
Moreover, the 2024 downgrade of Kenya’s sovereign credit rating by Moody’s raised borrowing costs, increasing sovereign risk exposure for banks, heightening caution in private sector lending.
