The Kenya Bankers Association has published the State of the Banking Sector Report for 2025.
The document highlighted that Kenya’s financial industry achieved strong earnings in 2024 even though there was an increase in bad debts and the economy faced difficult conditions.
Were Kenyan banks profitable?
As per the report, financial institutions recorded a pre-tax income of KSh 260.09 billion in 2024.
This represented a rise of 18.7 percent from the profits recorded in 2023.
The Kenyan Bankers Association stated that the results were driven by increased interest earnings from loans and credit facilities, accounting for over half of overall operational revenue, along with rising investments in government bonds.
Although operational costs increased by 11.5%, reaching KSh 879.21 billion, banks became more efficient with the cost-to-income ratio decreasing to 61.0%.
Capital reserves continued to be robust, with the industry’s overall capital-to-risk-weighted assets ratio standing at 19.7%, significantly higher than the required minimum of 14.5%.
Increased non-performing loans
Nevertheless, profits emerged amid increasing credit risks.
The proportion of non-performing loans (NPL) in the sector increased to 16.4% as of December 2024, with total NPLs reaching KSh 672.7 billion.
The highest rises in loan delinquencies occurred in commerce, property investment, production, and consumer financing.
The organization pointed out that the rise in non-performing loans was connected to lower earnings of borrowers because of delayed government legislation, as well as disturbances caused by ongoing Finance Bill demonstrations.
The decline in Kenya’s economy affected loan activities, as gross domestic product expansion dropped to 4.7% in 2024 compared to 5.7% in the previous year.
Net loans and advances decreased to KSh 4.1 trillion from KSh 4.2 trillion in 2023, with deposit growth slowing down to only 1.23%.
This cautious approach led the loan-to-deposit ratio to drop to 70.1%, reflecting banks’ inclination towards maintaining liquid reserves and opting for more secure investments.
Meanwhile, the industry experienced major changes in regulation and structure.
The Business Laws (Amendment) Act 2024 granted the Central Bank of Kenya authority to levy fines as high as KSh 20 million, or three times the financial benefit obtained, for violations.
The Central Bank of Kenya required a gradual increase in the minimum core capital, rising from KSh 1 billion to KSh 10 billion by 2029.
In the online domain, CBK advanced payment system upgrades by implementing the ISO 20022 protocol and granting licenses to 85 digital lending institutions.
