Kenyan banking sector balances strong profits with sovereign exposure challenges

  • 8 Mar 2024
  • 2 Mins Read
  • 〜 by Brian Otieno

Fitch Ratings recently conducted a peer review, where they assessed the creditworthiness of three bank holding companies – KCB Group PLC, NCBA Group PLC, and I&M Group Plc – along with their Kenyan banking subsidiaries and Stanbic Bank Kenya Limited. The rating given to these entities was the same as the sovereign Long-Term Issuer Default Rating (IDR) of ‘B’.

This is due to the concentration of the entities’ operations in Kenya and their significant exposure to the sovereign. SBK’s ratings are also underpinned by a limited probability of support from its South African parent, Standard Bank Group Limited (BB-/Stable). The Negative Outlook on all entities’ Long-Term IDRs mirrors that on the sovereign.

The centrality of the financial services sector

In the 2024 Budget Policy Statement, the National Treasury underscores the important role the financial services sector plays in enabling and realising the government’s agenda. Consequently, the 2024 BPS proposes, among other things, reforming the sector to maximise the sector to drive the transformative agenda.

In the face of the full appreciation by the government, Kenyan banks, a key cog in the financial services wheel, have continued to post mixed results. On the one hand, the numbers in yearly profits remain strong, while on the other, there is a stark increase in non-performing loans (NPLs).

Unpacking the findings

From the review by the Fitch Ratings, it was evident that Kenyan banks are operating in challenging domestic conditions. The depreciation of the local currency, high-interest rates, and high volumes of pending public-sector bills have and will certainly continue to cause a further moderate deterioration in asset quality.

Additionally, Kenyan banks have significant exposure to the sovereign through their investments in government securities and placements with the Central Bank of Kenya. Empirical data indicate that current exposure equalled double the banking sector’s equity at end-3Q23. This is a material exposure and is relative to banking capital, making the solvency of the banks vulnerable to potential losses in the event of a sovereign default.

On a positive note, Fitch Ratings notes that the banking sector’s strong pre-impairment operating profitability and good capital buffers should come in handy for the sector. These buffers will allow the sector to absorb rising impairment charges and provide room for further loan growth. Moreover, foreign-currency liquidity is generally adequate and limited reliance on external funding reduces refinancing risks.


Banking is a continuous cycle of balancing acts. Leveraging technology to ensure you meet consumer needs and regulatory compliance and taking strategic decisions to drive profitability keep players in the sector continually on their feet. According to the Fitch study, the Kenyan banking sector has a unique set of variables that need to be balanced now more than ever. More importantly, the increased exposure to sovereign bonds is a double-edged sword that banks need to look at proactively.