Investor confidence is crucial in shaping the course of Keya’s banking sector and capital markets. As the sector deals with strict monetary policies, fiscal constraints, and evolving risk frameworks, the ability of banks to build trust through performance and innovation is becoming increasingly strategic. Speaking to CNBC Africa, NCBA Investment Bank Managing Director Muathi Kilonzo emphasised the importance of investor sentiment and how it is interpreted within this changing environment.

Kenya is undergoing transformation with the implementation of a risk-based lending model. Against the backdrop of moderate inflation and persistently high interest rates, CNBC Africa noted that inflation is currently at 4.15% as of July 2025. This affords some flexibility for monetary policy even as lending rates remain closely tied to CBK’s benchmark. The cost of credit, therefore, remains a critical factor shaping investor confidence. This aligns with CNBC Africa’s analysis that investor trust depends less on rapid growth and more on the prudent balancing of risk and returns.

Despite growth slowing compared to recent years, Kenya’s economy remains resilient. The World Bank now projects the economy to grow by about 4.5% in 2025, down from 5.7% in 2023. This slowdown is mainly due to hefty debt repayments that take up a large portion of government income, leaving less for new projects, as well as high borrowing costs that make loans more expensive and discourage businesses and households from borrowing. Private sector lending has also decreased sharply, falling from robust growth in 2023 to a decline in 2024. On a more positive note, inflation is around 4.1%, within the Central Bank’s target range and allowing room for supportive policies. The Central Bank has responded by lowering interest rates to make borrowing easier for banks, businesses, and families. Nonetheless, the country faces a delicate balancing act, as debt levels stay high and the government seeks to raise more revenue through improved tax collection while avoiding new taxes that could add further pressure on households already struggling with rising living costs.

This environment has compelled banks to make tough choices between lending to the government and to private businesses. Government securities are appealing because they are safe and provide steady returns, but an excessive dependence on them risks crowding out private sector financing. Meanwhile, foreign businesses continue to dominate investment flows, highlighting Kenya’s appeal as a frontier market while also exposing it to external volatility. Research conducted between May and August 2025 identified companies that remain resilient, offering pockets of optimism for investors. Nevertheless, most market participants prefer safer options for now, while those willing to assume more risk are directing it towards banks and institutions that offer more comprehensive services such as advisory and structured products. Export-oriented sectors like coffee and tourism are helping to maintain investor confidence, whereas manufacturing faces higher risk premiums, demonstrating how sectoral differences influence investment appetite.

Looking ahead, reforms and strategic shifts are vital for building confidence. The implementation of the risk-based lending model signifies a move towards more transparent, data-driven practices that match loan costs with borrower risk. Meanwhile, Kenyan banks have dedicated significant resources to transparency, raising an estimated USD 4.7 billion to meet new financial reporting standards. This collective effort enhances governance and accountability across the sector. Regional expansion is also part of the plan, with banks venturing into markets outside Kenya to diversify earnings and pursue long-term growth. CNBC Africa emphasised that investor confidence will depend on reforms that improve access to credit, strengthen governance, and foster innovation. Although liquidity conditions have somewhat improved, effective monitoring and risk-based pricing remain essential for aligning lending with sector vulnerabilities.

Investor confidence in Kenya’s banking sector is cautious but evident. Some Kenyan banks’ performances demonstrate how strong fundamentals and disciplined strategies can sustain investor interest even in challenging times. Confidence, however, remains fragile. It depends on how effectively Kenya manages its debt burden, supports credit flow to the private sector, and implements reforms that enhance transparency. Over the medium term, trust will rest not on growth alone but on the sector’s ability to remain resilient, embrace reform, and seize opportunities in regional markets.