Bank Sector Kenya

As at 31 December 2022, the Kenyan banking sector comprised 38 commercial Banks[1] and 1 mortgage finance company.  The Kenya Government held a majority ownership in 2 institutions, while 17 were foreign owned (3 of which are branches). The foreign owned commercial banks accounted for 32.1% of the sector’s assets and the public banks only 0.5%. A list of the market shares of each bank by total assets, customer deposits and net income is included in the sector report.

The central bank classifies commercial banks into three peer groups using a weighted composite index[2]. Based on this index, there are 9 large banks with a combined market share[3] of 75.1% at end-2022, 8 medium banks with a combined market share of 16.3% and 22 small banks with a combined market share of 8.6%. The Kenyan banking sector is considered over banked and is highly fragmented. As a comparison, 38 commercial banks operate in Kenya, a country of 52.1m people, versus Nigeria’s 22 for 222.2m inhabitants and South Africa's 19 for around 61.5m people. A fragmented banking sector increases the burden on supervisors and makes it difficult for smaller banks to achieve economies of scale to help sustain profitability.

Kenya’s banking sector has been gradually consolidating since 2016, sparked by the failure of three mid-sized and small lenders[4], as well as a cap on commercial lending rates, which was removed in November 2019. One significant merger and two acquisitions transactions were finalized in 2019-2020[5]. The need to build resilience and exploit emerging opportunities has led to increased consolidations and combinations among several players. Additionally, Kenyan banks have continued to expand regionally through acquisitions, including in the Democratic Republic of Congo, Rwanda, and Tanzania.

At 31 December 2022, the banking sector remained stable and resilient. A detailed table of financial soundness indicators is included in the online sector report. Access a copy of the report here. The risk weighed capital adequacy ratio (“CAR”) and Tier 1 CAR closed the year 2022 at 19.0% and 16.1% respectively, which was above the statutory minimum of 10.5% and 14.5% respectively, calculated in line with Basel II requirements. The sector’s liquidity ratio stood at 49.9%, well above the statutory minimum of 20%. Growth in private sector credit stood at 12.5% in 2022 above the growth of 8.6% in 2021, accelerated by the economic recovery, although expected to tighten in 2023 due to the monetary policy stance and tightening of financial conditions.

The ratio of gross non-performing loans (NPLs) to gross loans in the banking sector was 13.8% in 2022, slightly down from 14.3% in 2021. The outstanding restructured loans amounted to 8% of gross loans at end-2022, with about 90% of the restructured loans performing as per the restructured terms. Specific provisions covered 43.3% of the banking sector loan portfolio at end-2022 (2021: 54.1%). Credit risk is expected to remain elevated in the short and medium term as the domestic and regional economies recover from recent shocks, and banks are also exposed to interest rate and FX risks from the rising interest rates and exchange rate depreciation pressures. According to the CBK, resolution of NPLs and continued adequate provisioning remain a priority, with asset quality improvements remaining contingent on the economic recovery and the resolution of government pending bills (overdue payables to banks incurred by any level of the public sector). Banks have shifted their demand toward shorter- to medium-term treasury securities in the face of rising interest rates. The CBK has indicated it will continue with the focus of building a resilient banking sector with strong business models and governance frameworks that will support Kenya’s post-pandemic recovery.

[1] Excludes Charterhouse Bank Limited and Chase Bank (K) Limited, which are in Liquidation and Imperial Bank Limited, which is in Receivership.

[2] The index comprises net assets, customer deposits, capital and reserves, number of deposit accounts and number of loan accounts. A bank with a weighted composite index of 5% and above is classified as a large bank. A medium bank has a weighted composite index of between 1% and 5% while a small bank has a weighted composite index of less than 1%.

[3] Combined Weighted Market Share (%) of the total net assets, total deposits, capital and reserves, and profit before tax.

[4] Dubai Bank Limited in August 2015, Imperial Bank Limited in October 2015, and Chase Bank (Kenya)Limited in April 2016.

[5] NIC Group Plc merged with Commercial Bank of Africa Ltd to form NCBA Bank Kenya Plc, Kenya Commercial Bank acquired the National Bank of Kenya, Co-operative Bank of Kenya Limited acquired Jamii Bora Bank Limited.