Kenya’s banking sector reaped big from the monetary easing cycle, with cheaper credit reviving loan demand even as falling lending yields squeeze interest margins.
An analysis of the H1, 2026 results by NCBA Investment Bank Research shows aggregate profit after tax (PAT) among banks under its coverage rose 20.3 per cent, more than double the 9.7 per cent growth recorded in the same period last year.
KCB’s profit before tax rose 20.8 per cent to Sh49.3 billion, while Equity Group’s jumped 39 per cent to Sh57.8 billion.
Co-operative Bank posted a 16.6 per cent increase to Sh22.7 billion and DTB grew 37 per cent to Sh9.8 billion.
Family Bank recorded the fastest growth at 59.3 per cent to Sh4.7 billion. In contrast, ABSA and StanChart recorded declines of 15.8 percent and 12.1 percent respectively.
The stronger earnings came as net loans expanded by an average of 14 per cent year-on-year and 8 per cent, compared with just 4.2 per cent and 1.1 per cent, respectively, in the first half of 2025.
The turnaround reflects the delayed transmission of the Central Bank of Kenya’s aggressive monetary easing cycle into the real economy.
The CBK cut the Central Bank Rate (CBR) repeatedly from 13 per cent in August 2024 to 8.75 per cent in February 2026, before holding it at that level through its April, June and August meetings.
While the benchmark rate has remained unchanged, commercial lending rates have continued to fall.
CBK data shows the average lending rate stood at 14.4 per cent in July, down from 17.2 per cent in November 2024.
NCBA Investment Bank estimates banks' average loan yields fell by between 150 and 200 basis points year-on-year during the first half.
Yet the increase in lending volumes more than compensated for some of the pressure on margins, underscoring the importance of balance-sheet growth in a lower-rate environment.
The improvement in asset quality is another positive development.
Data by CBK shows the banking sector’s gross non-performing loan ratio fell to 14.6 per cent in July, from 15.4 per cent in April and 17.6 per cent in August 2025.
The decline was recorded across key sectors including manufacturing, building and construction, trade, agriculture and real estate.
The improved NPL trend helped lenders convert increased credit activity into stronger bottom-line growth, although provisioning remains elevated at some institutions.
The recovery is also evident in economy-wide credit.
Private-sector credit growth reached 10.6 per cent in June, its strongest pace in 28 months, before moderating slightly to 10.2 per cent in July.
CBK’s July Market Perceptions Survey found that banks expect private-sector credit to expand by 9.9 per cent during 2026.
Banks attributed stronger demand partly to lower lending rates, KESONIA-based pricing, greater competition and expansion of digital lending.
The report estimates that aggregate net interest margins across its coverage universe expanded by 45 basis points between the first-half 2024 rate peak and first-half 2026, but performance varied sharply depending on loan and deposit composition.
Family Bank recorded a 218-basis-point improvement, while DTB gained 116 basis points.
Conversely, Absa Kenya and StanChart suffered margin contractions of 228 and 259 basis points respectively as their loan yields fell more sharply.
Non-interest income has provided another buffer.
Aggregate NFI grew at a seven per cent compound annual rate between the first half of 2023 and 2026, supported by credit-related fees, treasury gains, loan recoveries and non-banking businesses.
Strong capital and liquidity buffers reinforced the resilience of banks.
The regulator says sector capital adequacy stood at 20 per cent in June, against a statutory minimum of 14.5 per cent, while liquidity was 61.2 per cent against a 20 per cent minimum.
The outlook, however, is not without risks. Inflation rose to 6.5 percent in July, although it remained below the 7.5 per cent upper limit of the CBK target range.
The apex bank has also warned that higher energy prices linked to Middle East tensions could feed into inflation and weaken household and business demand.
