Kenya Banks 1H26 earnings: Putting it all together

With 1H26 earnings season behind us, Kenya banks recorded a positive performance with aggregate PAT growing 20.3% Y-o-Y, compared to 9.7% Y-o-Y in 1H25. The recovery was driven by a pickup in credit growth as net loans rose 14% Y-o-Y on average, versus 4.2% Y-o-Y in 1H25, although the benefit was uneven due to margin trends while credit costs remained elevated at some banks.

What stood out: Credit growth recovered, and the lower rate cycle created a clear divergence in margin performance across the banks. At the same time, improving NPL ratios translated into lower credit costs, however, provisioning remained elevated at a few banks. Overall, aggregate 1H26 PBT across our coverage universe is tracking broadly in line with our FY26 estimates. We believe, the macro environment remains favourable for banks. With the CBR at 8.5% and inflation contained within the mid-point of the Central Bank’s target range despite recent energy shocks, we see limited pressure for a reversal in the easing cycle. Rising T-bill yields, which had been a concern for us especially on funding costs, also appear to be finding a ceiling in the latest weekly auctions as inflation expectations seem to have moderated.

Credit growth recovery gathers pace

Across our coverage universe, 1H26 net loan growth averaged 14% Y-o-Y and 8% YTD, up from 4.2% Y-o-Y and 1.1% YTD in 1H25. Lower interest rates fed through to loan pricing as the CBR averaged 8.75% in 1H26 versus 10.4% in 1H25, resulting in a 150-200bps Y-o-Y decline in sector loan yields. Despite recent energy shocks, macro conditions held up, allowing credit growth to recover across the banks.

1H26: Net loan growth, Y-o-Y	1H26: Net loan growth, YTD

Funding-cost repricing cushioned margins

Between the 1H24 rate peak and 1H26, NIMs across our coverage universe expanded by 45bps on average, as funding costs declined faster than asset yields. However, the easing cycle has exposed significant differences in deposit and loan mix across banks. Family Bank (+218bps) benefited from relatively resilient SME/Retail loan yields, while DTB (+116bps) benefited from faster deposit cost repricing. In contrast, ABSA (-228bps) and StanChart (-259bps) saw margins contract, as their loan yields declined more aggressively between 1H24-1H26.

Kenya banks: 1H24-1H26 chg. In NIM (bps)

NFI growth shifts beyond FX

Aggregate NFI grew at a 7% CAGR between 1H23-1H26 driven by 11% CAGR in credit-related fees offsetting a 12% CAGR decline in FX income. “Other income” also grew at 33% CAGR, on the back of treasury gains, non-banking subsidiaries income and loan recoveries. EGH led NFI growth at 15% CAGR, while Stanbic’s declined 19% CAGR as FX income fell 31% CAGR, reducing its contribution to NFI from 69% to 42%.

Kenya banks: Aggregate non-funded income mix, 1H23-1H26	NFI: CAGR, 1H23-1H26

Asset quality trends improve

Average NPL ratios across our coverage universe declined to 10% in 1H26 from 13% in 1H25, with most banks recording Y-o-Y improvements. Aggregate gross NPLs declined 7% Y-o-Y, led by EGH (-22%) and ABSA (-19%), while Family Bank’s NPL stock increased 19%, pushing its NPL ratio to 14.7% from 13.8%. With the improvement in NPL ratio,  the average CoR declined to 1.7% from 2.3% in 1H25, although I&M and DTB increased their provision charges Y-o-Y in 1H26, which we believe was aimed at building their coverage ratios which has historically lagged peer averages.