FY26 could be the year the sector clearly splits between banks with durable earnings engines and those that benefited most from a temporary macro cycle. Writes Ndegwa Mbuthia, Wall Street Africa’s Head of Business Intelligence, in this excerpt from the Wall Street Africa Group FY25 Kenya Banking Sector Report.
Kenya’s banking sector is entering a very different earnings cycle.
After nearly two years of strong macro tailwinds, banks are now being forced to prove how much of their profitability was structural and how much was simply helped by high interest rates, elevated Treasury bill yields and foreign exchange volatility.
By the end of 2025, that environment had changed. The Central Bank Rate had fallen to 8.75% after an extended easing cycle, Treasury bill yields had dropped sharply, and the shilling had stabilized. For banks, that means the easy earnings boost from the rate cycle is fading.
At the center of this shift is KESONIA — the Kenya Shilling Overnight Interbank Average — which was introduced on September 1, 2025 as part of the revised Risk-Based Credit Pricing Model.
The new framework allows banks to price loans using either KESONIA or the Central Bank Rate, plus a customer-specific risk premium and disclosed fees. In simple terms, lending is moving toward a more transparent benchmark system, replacing the less clear internal pricing models that many borrowers had little visibility into.
This matters because the sector is now entering a period where loan repricing and margin compression will become major themes.
Some banks, including Co-operative Bank and Kingdom Bank, chose KESONIA, which means their pricing can move more quickly with liquidity conditions. Others, such as KCB, Equity, NCBA, ABSA and DTB, chose to anchor pricing to the CBR instead.
That difference may shape how earnings behave in FY26.
Banks that relied heavily on peak lending margins will likely feel more pressure as rates continue to settle lower. The report points to KCB as one of the names most exposed to full loan-book repricing under the new environment. By contrast, lenders with stronger fee income, tighter cost control and better volume growth may be better positioned to absorb the margin squeeze.
The real test now is credit growth. Private sector credit had recovered to around 5.0%, but that is still below historical levels. If credit demand does not accelerate meaningfully, banks may not be able to offset lower yields with higher volumes.
For investors, FY26 could be the year the sector clearly splits between banks with durable earnings engines and those that benefited most from a temporary macro cycle.
