Moody's affirms stable outlook for Kenya's top three banks
Business
By
Brian Ngugi
| Feb 10, 2026
Ratings agency Moody's has given a stable outlook for Kenya's three largest banks, reflecting their systemic importance and solid capital buffers, while warning that high levels of bad loans remain a key risk to the sector.
In a report published on Monday, Moody's said KCB Bank Kenya, Equity Bank Kenya and Co-operative Bank of Kenya all carry long-term deposit ratings of "B3" with a stable outlook.
The three banks hold a combined market share of nearly 40 per cent of banking assets in Kenya.
Moody's said it continues to assume a "high probability of government support" for the banks in the event of a crisis.
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The ratings affirmation aligns the banks' credit profiles with Kenya's sovereign rating of "B3 stable". The report said Kenya's economy is expected to grow around 5 per cent in 2026, with inflation stable and monetary policy supportive.
The report highlighted that non-performing loans (NPLs) in the banking sector remain elevated. The NPL ratio reached 17.6 per cent in August 2025 before easing to 16.5 per cent in November, levels Moody's described as "high by global and regional standards".
Moody's said it expects the NPL ratio to gradually decline toward 15 per cent over the next 12-18 months, supported by lower interest rates and credit growth.
However, the agency noted that a faster recovery in the manufacturing sector and resolution of government arrears would be needed for more substantial improvement.
Government arrears - unpaid bills to suppliers and contractors - and high public borrowing needs continue to constrain operating conditions for banks, the report said.
Moody's said Kenyan banks maintain strong capital buffers, with the Tier 1 capital ratio standing at 18 per cent in June 2025, well above regulatory requirements.
The report forecasts that profitability will soften from 2025 peaks but remain solid by regional standards. Pretax return on assets is expected to decline toward 3.3 per cent from an estimated 3.6 per cent in 2025, as net interest margins narrow on lower government security yields.
A phased increase in minimum capital requirements to Sh10 billion by 2029, from Sh1 billion previously, will accelerate consolidation in the banking sector, Moody's said.
Funding and liquidity conditions are expected to remain stable, though loan growth is projected to outpace deposit growth for the first time in years.
This will cause loan-to-deposit ratios to rise and liquid assets to decrease modestly from recent highs, the report said.
Foreign currency deposits account for about 30 per cent of total deposits, a level Moody's described as stable given record-high foreign exchange reserves.
The report noted that Kenya remains on the Financial Action Task Force's "grey list" for deficiencies in anti-money laundering and counter-terrorist financing frameworks, with remedial actions underway.
Moody's identified political tensions ahead of Kenya's 2027 elections and ongoing fiscal constraints as risks to economic stability that could affect the banking sector.
The agency said policy initiatives including structured debt issuance to clear verified arrears, higher capital spending and infrastructure investment supported by privatisation proceeds would help offset fiscal pressures.