Nairobi has long been the financial services capital of East Africa and has been respon- sible for key innovations that are helping to spread banking services to a wider section of the population across the African continent. Now its banks are growing rapidly on the back of a strong domestic economy and expansion into the wider Eastern African region.

As the recent African Business Top 100 African Banks report revealed, four of the 12 fastest-growing banks in Africa are in Kenya, more than in any other country.

These include Co-operative Bank of Kenya, which leapt from 46th biggest African bank in 2024 to 33rd in this year’s ranking. Co-operative Bank recorded a profit of KSh34.8bn ($267m) in the financial year 2024, up 7.5% on the previ- ous year, with a 10.7% rise in assets to KSh743bn, while opening 14 new branches to create a total network of 211.

The bank’s performance is the result of its “universal banking model, robust digital presence, extensive physical network, and deep roots in Africa’s largest co-operative movement with 15m members”, noted Gideon Muriuki, Co-operative Bank’s Group Managing Director and CEO.

In the list of fastest risers, the bank is followed by Absa Bank (Kenya), up from 64th to 52nd, Stanbic Bank Kenya, up an incredible 26 places to 62nd and Prime Bank, up 25 positions to 74th.

Kenya has 10 banks in the African Top 100, which is ranked by Tier 1 capital. Equity Bank is still the biggest, ranked 18th in Africa, with $1.9bn in capital, up from $1.4bn last year. It is followed by KCB Group with $1.7bn, a big rise from $1.3bn in 2024.

KCB reported a 7% increase in pre-tax profits for the first half of this year to KSh40.83bn ($317m), while it also completed the sale of its offshoot, National Bank of Kenya, to Nigeria’s Access Bank in May. The West African bank is now expected to merge National Bank with its existing operation in the country, Access Bank Kenya.

This is the latest sign of investment by banks based in one African region in other parts of the continent, as competition continues to intensify.

Equity Bank reported a record quarterly profit of KSh22.9bn ($176m) in the second quarter of 2025, with a 17% rise in post-tax profits. Customer loans reached KSh414.5bn ($3.18bn) and customer deposits KSh741.8bn ($5.70bn) at the end of 2024.

Equity Bank’s operations outside Kenya generated 49% of total deposits and CEO James Mwangi (pictured left) now describes Equity as a regional bank with its headquarters or roots in Kenya, rather than as a purely Kenyan bank.

Under its 2030 Strategy Framework, Equity aims to secure 100m retail customers, including 25m retail borrowers and 5m borrowing businesses by 2030. Its strategy focuses on six pillars: food & agriculture, extractive industries, manufacturing & logistics, trade & investment, MSMEs, and social & environmental transformation.

Although East African banks have the lowest combined capital of any African region, the rapid growth of Kenyan banks is helping them grow more quickly than those anywhere else in the continent. The combined capital of East African banks in the Top 100 has increased from $10.5bn to $12.7bn over the past year, while the number of East African entries has jumped from 13 in 2022 to 21 this year.

It is worth pointing out that Kenyan and East African banking strength appears to be being concentrated in the region’s biggest banks. Despite rapid growth in the upper reaches of the region’s banking cohort, the threshold for inclusion in East Africa’s 20 biggest banks is the same this year as in 2024 – $232m.

After a successful year for the Kenyan banking sector as a whole, the Nairobi Securities Exchange decided to launch the NSE Banking Sector Index on 1 October. It tracks the share price of the country’s 11 listed banks to serve as a benchmark for investors, thereby supporting index-linked products, such as exchange-traded funds (ETFs).

NSE CEO Frank Mwiti said that the launch of the new index was “fully aligned with our new strategy of driving product diversification and deepening market activity. Beyond providing investors with a reliable performance tracker, the index will highlight the banking sector as a key driver of economic growth and create a strong foundation for future product innovation.”

Spreading their wings

Regional expansion has been a key driver of Kenyan banks. Equity Bank already operates in Democratic Republic of Congo (DR Congo), Rwanda, South Sudan, Tanzania and Uganda, and has held talks with the Ethiopian Investment Commission over how it could enter the Ethiopian market.

KCB operates in the same five markets plus Burundi, with the Kenyan banks providing competition to each other as well as local banks. Other Kenyan banks are also expanding across Eastern Africa, with five of the 12 new branches the Co-operative Bank of Kenya opened in the past year located in South Sudan.

In May, Equity Bank concluded a $500m agreement with the African Guarantee Fund (AGF) to provide financing to micro, small and medium-sized enterprises (MSMEs) in DR Congo, Kenya, Rwanda, Tanzania and Uganda, in what is the biggest guarantee agreement in AGF’s history.

In a joint statement, the two partners said: “The framework will be implemented in three phases, starting with an initial $115m tranche already committed to the five core subsidiaries. It will cover loans to MSMEs, with a focus on women-owned, youth-led, and green enterprises.”

Multilateral support is increasingly focusing on providing finance to a wider range of economic enterprises than has traditionally been backed in the past.

AGF highlighted Equity Bank’s importance in financing African SMEs, a segment of the financial services market that has often been overlooked in the past but which is becoming much more prominent in banking strategies today. AGF chairperson Felix Bikpo even called on Equity Bank to “push into West and Southern Africa. What you are doing here can be transferred to the continent.”

It will be interesting to see what impact the rapid growth of Kenyan banks has on the pace of financial services’ integration in East Africa. The member governments of the East African Community are gradually working towards economic integration and also supporting much greater competition between the region’s banks.

Nairobi was already East Africa’s principal banking centre and the expansion of Kenya’s biggest banks into the Tanzanian and Ugandan markets could help improve services for a wide range of retail and business customers in both markets.

Yet it could also weaken the willingness of the Ugandan and Tanzanian governments to continue the process of deepening financial services’ integration. Much may depend on the level of competition in other sectors and how fast the other two big East African economies perform as a whole. At present, all three economies are growing strongly, so they should be more amenable to further integration.

Higher capital requirements

In July, the Central Bank of Kenya (CBK) lifted the moratorium on issuing new commercial bank licences that had been in place for almost a decade. The ban was introduced in 2015 to ensure sound governance and risk management following the collapse of Dubai Bank and Imperial Bank, plus severe challenges for some other banks. “Significant strides have been made in strengthening the legal and regulatory framework for Kenya’s banking sector, allowing the Bank to open up the market,” the CBK said.

These strides include the implementation of a 900% increase in the minimum core capital requirement for commercial banks to KSh10bn ($77m) by 2029, with annual increments to reach that level. The previous KSh1bn ($7.8m) threshold had been in place since 2021 and a previous attempt to raise the level to KSh5bn was rejected by the Kenyan parliament in 2015.

The CBK defines core capital as “shareholders’ equity in the form of issued and fully paid-up shares of common stock, plus all disclosed reserves, less goodwill or any other intangible assets.” Larger banks already meet the new requirement but their smaller counterparts will either have to merge or recapitalise, although they will be permitted to use retained profits to build up their capital.

The country already has 39 licensed banks, including three that are majority government-owned and 17 mainly owned by foreign interests, but the nine biggest banks accounted for about 90% of total bank profits in 2024.

In 2024, CBK Governor Kamau Thugge said: “The capital requirements for banks need to be increased. We have seen increased risks, whether it is from climate change or cyber-security. So we need very strong banks. We need strong banks that can not only operate in Kenya, but also operate in the region.” The rising rate of non-performing loans may also have prompted the move.

Impact on the market

The combination of the increased capital requirements and new opportunities to secure licences could encourage bigger foreign banks to enter the market that could offer lower borrowing rates. This in turn could trigger consolidation among existing players in the market, driving greater efficiency in the process.

This may be the eventual outcome but the Kenyan banking sector is already very innovative, acting as the crucible for the mobile money model and having among the very highest digital banking penetration rates in the world.

Credit ratings agency Fitch forecast in February that the new requirements would probably accelerate banking sector consolidation. The agency forecasts that 17 banks, which collectively account for just 7% of national sector assets, will be unlikely to comply “through earnings retention alone due to their large capital shortfalls and weak profitability”.

Many of the 17 are subsidiaries of regional banking groups that could receive capital injections but those small banks without this option are likely to be in- volved in mergers and acquisitions activity. “Consolidation among small domestic banks would strengthen their franchises and help to address their longstanding weaknesses, including weak profitability and susceptibility to deposit outflows during challenging periods”, said Fitch.

However, according to the Kenya Bankers Association’s State of the Banking Industry Report 2025, the sector as a whole had capital adequacy ratios well above regulatory requirements in 2024, “underscoring its resilience and capacity to finance inclusive development”.

The total capital-to-risk weighted assets ratio stood at 19.7% in 2024, ahead of the regulatory minimum of 14.5%, while the core capital-to-risk weighted assets ratio reached 17.4%, far above the 10.5% threshold.

Lenders have benefitted from recent cuts to base interest rates. Annual infla- tion stood at 4.1% in July, in the middle of the CBK’s 2.5-7.5% target range, allowing it to repeatedly cut its benchmark lending rate from 12.75% in July 2024 to 9.5% this August. The wider economy is also performing well, with the CBK forecast- ing economic growth of 5.2% this year and 5.4% for 2026, so the outlook looks brighter than ever. n

Equity Bank’s operations outside Kenya generated 49% of total deposits in 2024, prompting CEO James Mwangi to describe it as a regional rather than a purely Kenyan bank.

© Copyright IC Publications 2022 Provided by SyndiGate Media Inc. (Syndigate.info).