Small banks increased their share of sector profits for the nine months to September 2025, showing growing confidence by customers after years of flight triggered by the collapse of three lower-tier lenders in 2015 and 2016.
Latest Central Bank of Kenya (CBK) data shows that large banks contributed 83.3 percent of the industry profits, down from 89 percent in December 2024, capturing the faster growth by smaller players.
The industry posted an 11.8 percent growth in pre-tax profits to Sh227.9 billion for the nine months to September, up from Sh203.8 billion in a similar period last year.
Notably, 29 small and mid-sized banks grew their profits by an average 31 percent while the nine large banks recorded an 8.6 percent rise.
The shift came in a period of high liquidity in the market as private sector borrowing slowed down and the CBK eased cash reserve ratios, helping smaller lenders save on the high cost they usually have to pay to attract deposits.
Recent stability in the banking industry— previously shaken by the collapse of Chase Bank, Imperial Bank and Dubai Bank— boosted depositors’ confidence in small banks.
“One function of this performance could be that smaller lenders tend to focus on niche sectors such as MSMEs and tend to have higher loan rates to capture SME risk premiums, supporting their margins as deposit costs decline. Additionally, most of these lenders achieved higher returns by reallocating capital to high-yield government securities,” said Melodie Ndanu, a research analyst at Standard Investment Bank.
“Furthermore, some large banks have faced headwinds amid stable forex rates this year, reducing non-funded income, while subdued credit demand has impacted interest income.”
Large banks hosted 67.5 percent of the industry deposits as at September, being a drop from the 75.7 percent they held in December 2024. The nine large banks were holding Sh4.02 trillion in customer savings against an industry total of Sh5.95 trillion as at September. The 38 banks in the country had issued Sh4.25 trillion in loans of which Sh2.88 trillion were from the top nine.
Recently the Nairobi County Government made Sidian Bank, a small lender, the principal banker of its health facilities, moving the business from Co-operative Bank, a tier-one bank. Slow credit growth also took away an advantage of wide spreads enjoyed by large banks as they pay less for customer deposits while charging borrowers competitively.
Data from the CBK showed the interest spread - difference between lending and deposit rates - enjoyed by the banks was clustered around seven percentage points unlike in the past when the gap tended to be wider.
As at September large banks had an interest spread of 7.9 percentage points while mid-sized lenders were at seven percentage points and small banks at 7.5 percentage points.
The banks have also been forced to rely more on returns on government securities to drive their performance, levelling the playing field. While some of the small and medium-sized banks grew their profits in folds, Equity Bank Kenya recorded the fastest growth among large banks at 50.3 percent.
HF Group, a mid-sized lender, recorded the fastest profit growth in the industry, with its pre-tax earnings growing more than seven-fold to Sh902.6 million from Sh116.1 million a year earlier.
Sidian Bank, which was classified as a small lender, grew its profit before tax more than six-fold to Sh1.99 billion, up from Sh289 million a year earlier.
Some of the small lenders rose from the red to record profits, with government earnings being the key drivers.
Consolidated Bank, which has been in the red for over a decade, recorded a Sh88.3 million pretax profit while UBA Kenya reversed a Sh338 million loss to a Sh406,000 profit.
Some of the large banks recorded drops in profits, with Standard Chartered Kenya’s 44.9 percent the largest, attributable to a one-off cost of settling a pension claim by 629 former employees. Stanchart’s pre-tax profits fell by Sh9.9 billion to Sh12.1 billion from Sh22 billion a year earlier.
Stanbic Bank also posted a profit drop, 8.3 percent, owing to a dip in interest income as interest rates retreated.
Large banks ride on wider spreads between the return they give depositors and what they charge borrowers to outperform their smaller competitors. Smaller lenders are forced to pay higher to attract deposits and price loans competitively in order to lure corporates.
