Kenyan commercial banks are adopting revenue diversification strategies in response to margin pressure, credit cycles, and changing customer behavior. This shift involves earning both interest and non-interest income to strengthen resilience, efficiency, and customer value. A recent study covering 37 Kenyan commercial banks between 2005 and 2019 found that banks were more diversified in non-interest income, with an average index of 62.8 percent, than in interest income, at 3.62 percent.
The study, which comprised 555 bank-year observations, found an average technical efficiency of 66.9 percent on a zero-to-one scale. Interest income remains the core earnings engine for most commercial banks, and diversification within this stream comes from spreading lending across customer segments, sectors, products, maturities, and risk profiles. A positive and statistically significant relationship was found between interest-income diversification and efficiency, with a one-unit increase associated with a 0.138-unit improvement in efficiency.
To strengthen interest income, banks can allocate assets across complementary lending and investment activities, reducing dependence on one sector and improving use of funding and distribution capacity. This approach can also soften the effect of a downturn in any single portfolio. However, these benefits depend on disciplined underwriting, pricing, and concentration limits. By adopting a calibrated mix of corporate facilities, mortgages, consumer credit, and other products, banks can broaden their interest income.
Non-interest income, including transaction and account fees, payments, and cards, offers opportunities for Kenyan banks to earn recurring income and deepen customer relationships. The country's digital and agency-banking ecosystem has expanded the number of transactions that banks can serve without a matching increase in branch costs. However, the study found that the positive relationship between non-interest diversification and efficiency was not statistically significant, calling for selectivity in revenue growth.
The Kenyan experience reflects a wider global shift from product-led banking toward platform, transaction, and relationship-led models. Internationally, banks are seeking more recurring fee income as lending margins move with interest-rate cycles and competition. Payments, wealth and insurance distribution, and transaction banking are increasingly important. Kenya's distinctive advantage is its mature mobile-money and agency-banking environment, allowing banks to combine regulated balance sheets with high-frequency digital distribution.
To achieve durable customer value and risk-adjusted returns, Kenyan banks should set explicit portfolio targets for interest and non-interest income, measure each business line on risk-adjusted profitability, and review concentration and operational dependencies. Management dashboards should distinguish recurring, customer-led income from gains that are cyclical, market-sensitive, or difficult to repeat. A balanced strategy, broadening interest income and developing transparent, scalable non-interest services, can make Kenyan banks more resilient.
According to Dr. Alex Mbai, a Partner and Head of Clients and Markets at KPMG Kenya, revenue diversification can make Kenyan banks more resilient, but the study evidence cautions against treating every new income source as equally valuable. The strongest strategy is a deliberate operating model, rather than a collection of additional products, with a common lens of efficiency, risk, and customer value. The full study report is available at the University of Nairobi library.
Key points
- Kenyan banks are shifting towards revenue diversification to strengthen resilience and efficiency.
- The country's mature mobile-money and agency-banking environment allows banks to combine regulated balance sheets with high-frequency digital distribution.
- A balanced strategy, broadening interest income and developing transparent, scalable non-interest services, can make Kenyan banks more resilient.
