Kenyan banks have reported a solid earnings recovery in the first half of 2026, driven by falling deposit costs, expanding credit, and improving loan quality. According to the Central Bank of Kenya, cumulative sector profit before tax climbed 16.4% to KSh172.4bn in the six months to June 2026, up from KSh148.1bn in the same period of 2025. This growth is attributed to lower funding costs that have protected margins, despite falling interest rates reducing loan yields across the sector.
The decline in deposit costs has been faster than the decline in loan yields, allowing lenders to protect their net interest margins. Central Bank of Kenya data show that gross loans rose 12% year on year to KSh4.65 trillion (approximately US$36bn) by June 2026, compared with KSh4.45 trillion in March 2026, a 4.3% quarterly rise. This credit growth is adding further momentum to the sector's earnings recovery.
The earnings recovery follows a difficult stretch for borrowers, who were squeezed by high rates that affected repayment capacity across households and businesses. Easing financing conditions now offer a more supportive operating backdrop for lenders. The Central Bank of Kenya data also show that gross non-performing loans fell by KSh40.1bn to KSh688.2bn by June 2026, down from KSh728.5bn a year earlier.
The decline in non-performing loans is a positive combination with expanding credit, signaling that lower borrowing costs are easing stress among existing borrowers. However, Kenyan banks still carry higher non-performing loan ratios than several regional peers, making asset quality a key credit consideration for investors.
Capital buffers add resilience to the sector's picture, with the sector's capital adequacy ratio standing at 20.0% against a regulatory minimum of 14.5%. Average liquidity reached 61.2%, well above the 20% statutory floor, providing meaningful headroom against unexpected shocks.
The earnings signal is now clearer, with profit growth, improving loan quality, and strong liquidity supporting the sector's valuation case. However, sovereign exposure remains the central risk to watch, as Kenyan banks hold significant government debt, linking their credit profiles closely to public finances.
Investors should monitor non-performing loan trends, capital deployment, and sovereign-debt exposure as Kenya's rate cycle continues to shift. Margin performance and loan-quality data in the second half of 2026 will be the clearest guide to whether the sector's recovery has lasting momentum.
Key points
- Kenyan bank profits grew 16.4% to KSh172.4bn in H1 2026.
- Gross loans rose 12% year on year to KSh4.65 trillion by June 2026.
- Non-performing loans fell by KSh40.1bn to KSh688.2bn by June 2026.
