Kenya’s Banking Industry Remains Robust Despite COVID Pandemic Effects while Anchoring Enterprises and Trade kbaadmin July 27, 2021

Kenya’s Banking Industry Remains Robust Despite COVID Pandemic Effects while Anchoring Enterprises and Trade

  • Banks’ Tax Contribution At Kshs. 42.4 Billion In 2020 Down From Kshs. 55.4 Billion In 2019, Largely Reflecting Effects Of The Pandemic
  • Bank Lending To SMEs Up By 42 Percent As Of December 2020
  • Loan Loss Provisioning Increased By 47.5 Percent To Kshs.198.1 Billion With Focus On Restructuring Trade, Manufacturing And Agriculture Portfolios
  • Industry Capital Adequacy Ratio Rose To 19.0 Percent In 2020 From 18.8 Percent In 2019 Due To Heightened Risk Environment

Nairobi 27th July 2021 – The banking industry in Kenya remains sound and stable despite being buffeted by the effects of the Coronavirus (COVID-19) pandemic. Overall profitability and contributions to the national budget declined to a nine-year low in 2020 on the back of the COVID-19’s negative impact on the economy, particularly the trade, manufacturing and agriculture sectors where banks have restructured a majority of assets. In a separate report by Central Bank of Kenya (CBK) bank lending to micro, small and medium-sized enterprises rose by 42 percent between 2017 and 2020 to stand at with a total value of Ksh.638.3 billion by December 2020, up from Ksh.413.9 billion in December 2017.

According to the Kenya Bankers Association’s (KBA) State of the Banking Industry (SBI) Report 2021, banks’ profits before tax dropped by 30.9 percent – the lowest level since the year 2012. The report attributes the decline to a depressed economic performance and quality of assets held by banks during the year. In the period, provisioning for loan losses increased by 47.5 percent to Kshs.198.1 billion from Kshs.134.3 billion in 2019, with loan loss accommodations absorbing 45.7 percent of non-performing loans compared to 40.2 percent in 2019.

The industry’s average Return on Assets declined to 2.0 percent, a pace faster than trend declines noted over the past few years. In addition, the industry’s average Return on Equity scaled down to 13.3 percent from an average of 21.1 percent recorded in 2019.

According to the KBA-SBI Report, banks have been committed to support the Government on its COVID Economic Recovery plan with a focus on key sectors that drive output and employment, particularly the trade sector. Compared to other sectors, the banking industry’s financial performance in 2020 saw a lower total income growth following rising operating costs largely driven by increased expenses on loan loss provisions. The industry’s net interest margin also dipped marginally as the cost of funding, on average, remained largely unchanged. These developments differed across bank sizes.

Despite the growth slowdown, the industry continued to withstand market shocks arising from the pandemic. The KBA-SBI Report indicates that the sector’s outlook for the year 2021 appears stable, supported by adequate capitalization and liquidity levels. The industry’s total capital adequacy ratio rose to 19.0 percent in 2020 from 18.8 percent in 2019, above the statutory minimum requirement of 14.5 percent, supported by an increase in the total capital which outpaced the growth in total risk-weighted assets during the period.

In his remarks during the report’s release today, KBA Chief Executive Officer Dr. Habil Olaka said the banking sector players continue to review and enhance their business models, seeking to leverage on frameworks that promise efficiency gains, particularly through adoption of technology-based innovations. “Cognizant of market risk, growing competition, increasing sophistication of customer expectations, as well as the dynamism in the regulatory environment, the overarching challenge for the industry is to continue investing resources towards remaining at the frontier while underpinning economic recovery,” Dr. Olaka said.

The banking sector’s total assets expanded by 12.4 percent in 2020, to Kshs. 5.4 trillion from Kshs. 4.8 trillion in 2019, driven by a faster expansion in non-loan assets – mainly investments in government securities – which grew by 18.5 percent as gross loans and advances rose by 6.7 percent. Net loans and advances increased by 9.1 percent in 2020 to close at Kshs. 2.93 trillion from Kshs. 2.63 trillion in 2019. However, the asset composition saw minimal changes in the year.

Meanwhile, the banking system’s deposits maintained a strong growth trajectory, expanding by 13.1 percent up from 8.3 percent in 2019 to close at Kshs. 4.11 trillion. This was reflective of asset reallocation driven by high uncertainty. The buildup of deposits during the year outpaced gross loans growth, enhancing liquidity in the banking system. The industry’s deposit-to-liability ratio rose marginally to 88.5 percent in 2020 from 88.1 percent in 2019, indicating the sector’s strong reliance on wholesale funding to cut costs on the liability side of the balance sheet.

Kenya Bankers Association Research and Policy Director Dr. Samuel Tiriongo said analyses of banks’ tax contribution showed the industry contributed Kshs. 42.4 billion in 2020 down from Kshs. 55.4 billion in 2019, largely reflecting the depressing effects of the pandemic on incomes. “While this represents a 23.6 percent drop in the tax contribution, it highlights the extent to which the sector would have contributed more to tax revenue had it not borne most of the weight of supporting other sectors of the economy. In fact, the implicit tax rate of the industry rose to 39.1 percent in 2020 from 35.7 percent in 2019,” added Dr. Tiriongo.

At the close of the year 2020, banks had collectively raised about Ksh 1.7 billion for the COVID-19 Emergency Response Fund, an intervention without which many hospitals and health workers would have been in dire need.

The KBA-SBI Report is an annual publication of the Kenya Bankers Association Centre for Research on Financial Markets and Policy aimed at contributing to the understanding of the Kenyan banking industry. In compiling this year’s report, the Centre drew from a database of bank-level financials spanning over one and half decades from 2003 to 2021.

About the Kenya Bankers Association:

KBA ( was founded on 16th July 1962. Today, KBA is the financial sector’s leading advocacy group and banking industry umbrella body that represents total assets in excess of USD 40 billion. KBA has evolved and broadened its function to include advocacy on behalf of the banking industry, and championing financial sector development through strategic projects such as the launch of the industry’s first P2P digital payments platform PesaLink. In line with the Government’s policy on public-private partnerships, KBA and Central Bank of Kenya have implemented key projects such as modernization of the National Payments System through the Automated Clearing House, implementing the Real Time Gross Settlement System (RTGS), and the Kenya Credit Information Sharing Initiative. The KBA members are comprised of commercial banks and deposit taking microfinance banks.

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