Absa Bank Kenya projects its lending volumes to grow this season on branch network expansion and gains from a new loan pricing formula.
The lender plans to expand its physical footprint across the country by opening branches in Mtwapa and Wajir before the close of 2025, buoyed by the strong performance of its recently opened outlets.
According to the bank’s top management, the repositioning of the brand towards the retail segment of the economy is delivering desired outcomes as the latest branches prove their ability to cover their costs at just about 80 percent of the typical time taken to break even.
“We’ve opened seven branches in the last twelve months, and those branches have broken even within anything between six and twelve months, which is a record pace. It’s about understanding demographics and checking what’s happening in the cities as people are moving and coalescing towards neighbourhoods as opposed to malls. Last year alone, we brought on book about 130,000 new customers,” Absa Bank’s Consumer Banking Director, Moses Muthui, said.
“So, it is about a carefully selected expansion around the country as Kenyans increasingly scout for a physical manifestation of banking, even as they go digital. Wajir, for example, where we are going next, is a county headquarters,” the official added.
Absa Bank Kenya said that right-sizing traditional branches has been key in this outcome and created avenues through which they can complement the fast-growing appetite for transactions conducted predominantly via digital platforms.
“It’s not your 4,000 square foot traditional branches, it’s now about 1,800 square foot, and that is then complemented by investing in digital, where it really matters, and that is in payments”, Mr Muthui said.
The bank has shrugged off concerns that its leaning towards the retail segment of the market to drive organic growth and expansion exposes it to the challenge of rising bad debt experienced in the market.
“Our NPL (non-performing loan) ratio as of the last filing was around 10 percent, unlike what we are seeing in the industry at around 17 percent average. For us, it’s about tightening how we manage the flow to default, and that is the art of walking with clients and ensuring, where need be, you are restructuring early enough because that is where the greatest impact of sustaining a good quality on your portfolio lies”, Muthui says.
On October 7, 2025, the bank notified its customers of the impending transition to a new a risk-based credit pricing model (RBCPM), which takes effect for new loans on December 1, 2025.
The bank’s management says it sees an opportunity for high-volume lending once the new regime takes effect, given the transparency in price build-up for loans across the sector.
“There’s obviously a lending opportunity presented, and we think we are going into a high-volume season in terms of lending with the new framework in place. We are adjusting our appetite accordingly as we get ready for that cycle, as we engage in stress testing and do the operational readiness work. The greatest thing here is the opportunity for product innovation”, Muthui said.
The Central Bank of Kenya (CBK) introduced the RBCPM, which took effect for new variable-rate loans on September 1, 2025.
The new model will use the interbank rate as the common reference rate for determining lending rates to all customers. Banks will be allowed to load a premium (K) on the reference rate, now referred to as the Kenya Shilling Overnight Interbank Average (Kesonia). The total lending rate is now calculated as Kesonia + Premium (“K”), where the premium reflects the borrower's risk profile, bank costs, and shareholder returns.
Commercial banks have been granted a three-month grace period to implement the new formula on loan pricing.
The CBK has given the banks a grace period of up to December 1, 2025, to start using the new pricing model on loans booked, while giving them a six-month window to March 1, 2026, for existing loans.
