Kenya Banking Industry gains double digits, says the State of Banking Industry report 2023

Improved activity in Kenya’s private sector led to credit growth in banking industry, reaching double-digit levels last year.

According to the State of Banking Industry Report 2023 by the Kenya Bankers Association (KBA), loans and advances grew by 12.5 percent to Sh3.6 trillion in 2022 from Sh3.2 trillion in 2021.

Lending by medium banks grew by 9.1 percent in 2022 to Sh472 billion from Sh432.5 billion in 2021 while that of large banks expanded by 14.7 percent to Sh2.8 trillion from Sh2.5 trillion over the period. In contrast, lending by small banks declined by 2.9 percent to Sh264.2 billion in 2022 from Sh271.98 billion in 2021, reflecting net repayments of loans to the small banks.

“The observed private-sector lending was underpinned by dynamics in credit uptake by the sectors of the economy, their ensuing risk dynamics and projected performance of each,” notes the study.

Strong credit growth was absorbed by four main sectors: personal/household (that accounted for 27.1 per cent of total credit to private sector), trade (18 per cent), manufacturing (14.6 per cent), and real estate (12.9 per cent), cumulatively accounting for 72.6 percent of the total industry loan book.

The fifth edition of the State of the Banking Industry (SBI) Report by the Kenya Bankers Association sheds light on diverse factors that influenced Kenya’s economic growth path in 2022. The report highlights the economy’s resilience in the face of both global and domestic shock

“Thee SBI Report dissects the industry’s growth indicators, including assets, liabilities, and liquidity; examines developments in asset quality and financial performance, shedding light on the robustness of the banking sector,” explains Habil Olaka, Chief Executive Officer, Kenya Bankers Association. “The significance of deposit-taking microfinance banks and the embodiment of sustainable banking practices in the industry are also highlighted.”

Kenya’s macroeconomic environment proved resilient in 2022 despite shocks from both the global and domestic economy; to grow at 4.8 percent compared to 7.6 percent in 2021. This reflected a rebalancing effect of a stronger growth in services and industry as agriculture remained depressed.

On the policy front, inflationary challenges at both global and domestic front triggered monetary policy tightening; that consequently pushed up interest rates and cost of Government borrowing.

Besides taming inflationary pressures, the other policy priority was reducing debt vulnerabilities in the economy. Against this backdrop, and as highlighted in this State of the Banking Industry Report, the focus is on evolution of the banking industry in 2022.

There were two critical regulatory developments that shaped the outcomes of the credit market in 2022. First, was the enhanced approvals of banks’ risk-based credit pricing models by the Central Bank of Kenya that continued to support bank’s ability to price credit appropriately.

As at end 2022, twenty-eight banks (comprising of 4 Tier I; 7 Tier II; and 17 Tier III) out of 39 banks – representing 53.2 per cent of total industry assets – had received approvals of their risk -based pricing models.

Second, was the rollout of the Credit Repair Framework in November 2022 for the financial institutions, targeted at addressing the digital non-performing loans and improving credit records of borrowers at the credit reference bureaus (CRBs).

Other developments during the year saw the banking sector assets (that account for about 47.1 percent of GDP) grow by 8.2 percent to Shs. 6.5 trillion from Sh6.0 trillion in 20210, driven mainly by growth in loans and advances and investments in government securities that together accounted for 79.7 percent of the total assets.

“Given the elevated level of private sector credit risk and the expected macroeconomic slowdown in 2023, this is likely to push banks to increase their exposure to lower risk weighted, less-risky government securities, tapering the private-sector credit loan growth improvements registered so far.”

“The expectations of economic growth slow down, and a sustained depreciation of the Kenyan shilling may further deteriorate credit risk and banking sector asset-quality deterioration, thus exerting pressure on banks to make additional loan loss provisions. Nonetheless, the banking sector is expected to ‘weather the storm’ with adequate capitalization and liquidity levels

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