The cumulative pre-tax profit of commercial banks operating in Kenya rose 13.6 percent in the three months ended March, riding by cheaper deposits.
Data from the Central Bank of Kenya (CBK) shows that lenders posted a cumulative pre-tax profit of Sh83.5 billion in the first quarter of the year, up from Sh73.5 billion in the same period last year.
The performance is limited to the banks’ operations in the Kenyan market.
“It was driven by a gradual uptick in lending and lower interest expenses, which partly offset the decline in interest income and margin compression for select lenders as they priced in the consecutive CBR rate cuts during the period,” said Melodie Ndanu, a senior research associate at Standard Investment Bank.
Credit growth
The volume of loans disbursed by banks rose eight percent to Sh4.45 trillion during the review period, marking the fastest credit expansion recorded by the industry in two years.
The CBK said demand for credit from the trade sector and households was attributable to increased working capital requirements.
The credit expansion followed pressure from the CBK on banks to lower lending rates in order to spur private sector borrowing. The regulator cut its benchmark rate from 10.75 percent to 8.75 percent in the 12 months to March, signalling to banks that they should reduce loan prices.
Banks, however, were slow to pass on the full rate cuts to borrowers while moving quickly to slash deposit rates.
“Deposit rates are often short term and banks tend to focus on transactional deposits, allowing banks to lower them almost instantly as the central bank slashed the CBR rate,” said Ms Ndanu.
“On the other hand, yields on loans fell at a slower pace, likely due to the high cost of legacy fixed deposits booked during the high-interest-rate environment, operational cost considerations, sticky NPLs – still in the double digits – among other considerations,” she added.
Asset quality
Non-performing loans stood at 15.6 percent of the total loan book, equivalent to Sh694.6 billion, at the end of March compared with 17.4 percent, or Sh717.4 billion, a year earlier.
The improved quality of loan book follows aggressive debt collection efforts, including the auction of collateral by banks, the conclusion of court cases involving lenders and large corporates over defaulted loans, and decisions by lenders to write off debts they did not expect to recover.
Customer savings with banks rose 13.6 percent, or Sh782 billion, to Sh6.51 trillion, outpacing growth in lending. This suggests banks invested more in lending to the government during the review period than in extending credit to the private sector.
Small banks recorded faster growth than their larger rivals, with some institutions that had previously been loss-making returning to profitability.
UBA Kenya moved from a loss of Sh12.3 million to a pre-tax profit of Sh120.9 million, while CIB Kenya turned a Sh155.8 million loss into a profit of Sh160.1 million.
Mixed fortunes
Among the large banks, results were mixed, with Standard Chartered Bank Kenya and Absa Bank Kenya recording profit declines.
StanChart posted a 30.6 percent drop in pre-tax profit to Sh4.22 billion from Sh6.08 billion, which was attributed to interest expenses declining slowly.
Absa reported a 17.5 percent decline in profit due to higher expenses, particularly staff costs, following one-off payments of Sh717 million to employees who took voluntary early retirement during the first quarter.
KCB Bank Kenya remained the country’s most profitable lender, posting a profit of Sh17.62 billion after a 21.4 percent increase.
Equity Bank Kenya reported a profit of Sh11.9 billion, underlining the contribution of its parent firm’s regional subsidiaries, whose earnings helped the group surpass KCB in overall profitability.
The first-quarter growth signals another strong year for banks, which posted a record pre-tax profit of Sh311.8 billion last year despite reporting flat earnings in the first three months of 2025 compared with 2024.
Rising inflation could, however, cast a shadow over the sector as households prioritise basic needs over loan repayments, potentially pushing non-performing loans higher.
Notably, between the end of December 2025 and March this year, the ratio of non-performing loans rose marginally to 15.6 percent from 15.4 percent.
“This was due to a higher increase in gross NPLs of 3.4 percent and an increase in gross loans of 1.9 percent,” said the CBK.
