Kenyan banks may have improved their asset quality in FY25, but the sector is still carrying the heaviest bad loan burden in East Africa, according to the FY25 Kenya Banking Sector Report by Wall Street Africa Group.
- • Kenya’s banking sector ended FY25 with an estimated non-performing loan ratio of about 15.5%.
- •That is far above regional peers such as Tanzania at 3.3%, Uganda at 3.7%, and Rwanda at 4.1%.
- •Even after some recovery, Kenya remains more than 11 percentage points worse than the region’s peer markets on bad loans.
That gap is striking.
The report attributes this to a mix of legacy loan books, the impact of the high-rate cycle, distress in construction and real estate, and delays in government payments to contractors.
In other words, the problem is not just cyclical. It is also structural.
Government payment delays continue to hurt sectors linked to public contracts, especially construction. That has made asset quality one of the hardest issues for several banks to fully resolve, even as lower rates begin to ease pressure elsewhere in the economy.
Still, there were clear differences among lenders.
Standard Chartered Kenya and Stanbic remained the strongest asset quality names in the reporting cohort, ending FY25 with NPL ratios of 5.5% and 8.0% respectively. KCB showed one of the biggest improvements, reducing its NPL ratio to 16.9% from 19.2%, while Equity improved to 11.5%.
Co-operative Bank, however, remains one of the sector’s more difficult credit stories. Its NPL pressure is heavily concentrated in construction and real estate, which means its recovery is closely linked to government disbursements and broader sector normalization rather than just internal credit management.
This is why asset quality may remain one of the most important banking themes in 2026.
Lower rates can help reduce fresh stress in loan books, but they do not automatically solve old problem assets. Unless the pending-bills issue improves and banks continue to work through legacy exposures, Kenya’s bad loan problem is likely to remain the biggest drag separating it from East African peers.
For investors, the headline is simple: profitability may improve, but asset quality is still the sector’s biggest unresolved risk.
