Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Moody’s sees lower profits for Kenyan banks in 2026
Banks, which are yet to release their 2025 full year financial results, had posted an 11.8 percent growth in pre-tax profit in the nine months to September partly helped by cheaper deposits.
Commercial banks are expected to report lower profits in the current financial year ending December 2026 due to lower earnings from government securities and shrinking interest rate margins, according to credit rating agency Moody’s.
The rating agency, which gave Kenya’s banking industry a stable outlook, expects loan uptake by the private sector to grow but not sufficiently to cover for expected drop in income due to lower yields from Treasury bills and bonds.
Banks, which are yet to release their 2025 full year financial results, had posted an 11.8 percent growth in pre-tax profit in the nine months to September partly helped by cheaper deposits.
The interest on government securities have been on a downward trend since September following the Central Bank of Kenya (CBK) decision to ease monetary policy and increase private sector credit that had been crowded out by government borrowing.
“Profitability will soften from the 2025 peak but remain solid: margins will narrow as government-security yields fall, partly offset by lower funding costs and a shift toward higher-yielding loans,” said Moody’s.
“We expect return on assets to decline towards 3.3 percent (having risen to around 3.6 percent in 2025 from 3.4 percent in 2024) over the outlook period as net interest margins narrow on lower government security yields.”
The interest on Treasury bills, for instance, dropped from a range of 9.8 percent to 11.37 percent at the start of last year to between 7.7 percent and 9.2 percent by the end of the year.
The earnings slump forecast by Moody's will be preceded by significant profit growth for the year ended December 2025.
Banks are required to release their full year results by the end of March. The lenders are expected to breach the Sh300 billion mark in pre-tax profit in 2025, having posted gross earnings of Sh227.9 billion in the nine months to September.
The earnings growth is despite a stagnation of the industry’s loan book as businesses and households shied from taking new debt at interest rates of over 15 percent in a tough economic environment.
Moody’s however expects credit to expand more this year as banks cut the price of loans and the economic environment improves.
Increased loan uptake will help ease some of the pain banks will feel from lower income from government securities.
“Lower interest rates and improving operating conditions in key sectors will support borrower performance,” said Moody’s.
To ease interest rates in the country, CBK has cut its indicative policy rate --the Central Bank Rate-- to nine percent from 13 percent in June 2024.
Since August last year, banks have adopted a new common pricing model that is aligned to the CBR which is expected to pull down interest rates.
“We expect the sector wide non-performing loans ratio to decline toward 15 percent over the next 12–18 months, from 16.5 percent in November. This will be supported by a benign economic backdrop, lower lending rates and accelerating credit growth,” said Moody’s.
Government's commitment to clear long standing pending bills, which are a key contributor to the pile of bad loans held by banks, is also expected to help improve the quality of the industry loan book.
Improved efficiency as banks ride more on automation is expected to help lenders keep their operation expenses in check.
