Regional units now grow into Kenyan banks' new golden goose

Kenyan banks are posting record half-year profits, but the engine of growth is increasingly located beyond the country's borders as a slowing domestic economy and rising living costs squeeze households and businesses at home.

While the Central Bank of Kenya (CBK) reported the economy expanded 5.3 per cent in the first quarter of 2026, up from 4.9 per cent a year earlier, the outlook has darkened considerably.

The CBK has slashed its full-year 2026 GDP growth projection to 4.9 per cent from an earlier 5.3 per cent, citing the disruptive impact of the Middle East conflict on global supply chains, surging energy prices and elevated trade policy uncertainties.

Inflation hit 6.7 per cent in May, the highest since January 2024, driven by fuel and transport costs.

The Purchasing Managers' Index fell to 46.6 in May, signalling the sharpest deterioration in private sector conditions since July 2024, with firms cutting temporary workers for the first time in 16 months.

Diaspora remittances, a lifeline for millions of Kenyan households, dropped 3.03 per cent to $2.44 billion in the first half, the weakest six-month performance in nearly two decades.

"The slowdown was primarily driven by reduced customer spending, delayed payments, weaker market activity, and heightened economic uncertainty amid ongoing global conflicts," the CBK said in its June 2026 CEOs Survey.

Yet Kenya's top lenders have defied the gloom. Equity Group Holdings posted a 32 per cent surge in half-year net profit to a record Sh43.80 billion.

KCB Group reported net profit of Sh36.1 billion. Co-operative Bank delivered its strongest-ever first-half performance with net profit jumping 28 per cent to Sh18 billion.

NCBA Group profit after tax rose 12.2 per cent to Sh12.4 billion, while I&M Group grew earnings 20.4 per cent to Sh9.30 billion.

Subsidiaries outside Kenya now contribute 42 per cent of Equity Group's banking profitability and 47 per cent of banking revenue.

Equity BCDC in the Democratic Republic of Congo posted a 30 per cent rise in profit after tax to Sh11.8 billion, while Equity Tanzania recorded the strongest growth with profits surging 82 per cent to Sh2 billion.

Equity Bank Kenya, the group's largest unit, grew profit after tax 32 per cent to Sh25.7 billion.

"Equity's half-year 2026 performance is the outcome of a multi-year transformation agenda focused on resilience, diversification, and technology enablement," Group Managing Director and CEO James Mwangi said at an investors' briefing in Nairobi.

At KCB, regional subsidiaries contributed 27.7 per cent of profit before tax and now account for 31.1 per cent of the group's total balance sheet.

The lender's total assets reached Sh2.3 trillion, making it the region's largest bank by assets. Non-banking units such as KCB Bancassurance and KCB Investment Bank also delivered strong double-digit profit growth, reflecting a strategic pivot toward diversified income streams that now deliver 31 per cent of total revenue.

"Our strong half-year performance reflects the resilience of KCB Group's diversified business model, the strength of our regional footprint, and the confidence our customers continue to place in us," KCB Group Chief Executive Paul Russo said.

Co-operative Bank's universal banking model proved equally potent.

Kingdom Bank, the retail-focused subsidiary, nearly doubled pretax profit, rising 77.8 per cent to 873.0 million shillings. Fund management arm Co-optrust Investment Services grew pretax profit by 77.5 per cent to Sh640.5 million, supported by funds under management of Sh505.2 billion.

The group's South Sudan operation swung to a Sh224.0 million pretax profit from a loss of Sh56.9 million a year earlier.

Analysis shows Kenyan banks are thinking beyond borders, with KCB, Equity, and Co-operative Bank setting their sights on Ethiopia.

A growing share of profits comes from places like the Democratic Republic of Congo.

NCBA's regional subsidiaries in Uganda, Tanzania and Rwanda delivered a combined Sh1.6 billion in profitability on the back of strong lending growth of 25 per cent.

Non-banking subsidiaries, including NCBA Investment Bank, Leasing, Bancassurance and NCBA Insurance, delivered Sh1.1 billion collectively, a 40 per cent year-on-year growth.

I&M Bank Rwanda led the regional charge with a 53 per cent increase in profit before tax to Sh2.4 billion, while I&M Bank Uganda recorded a 225 per cent surge in profitability.

Subsidiaries outside Kenya now account for 33 per cent of I&M's group profit before tax, up from 25 per cent in the prior year.

"The strong growth in operating income, combined with the increasing contribution from our regional subsidiaries, reflects the disciplined execution of our diversification strategy," said I&M Group Regional CEO Kihara Maina.

The strategy provides a natural hedge against domestic headwinds. While Kenya is projected to grow at 4.9 per cent this year, the DRC is forecast at 5.6 per cent, Tanzania at 5.9 per cent, Uganda at 6.4 per cent and Rwanda at 6.8 per cent.

These faster-growing economies are absorbing Kenyan banking expertise and capital, delivering returns that domestic operations alone could not sustain.

The regional pivot has not been without cost.

Banks have increased loan-loss provisions amid geopolitical uncertainty. I&M Group raised provisions by 38 per cent to Sh5.6 billion. Asset quality across the sector has nonetheless improved, with KCB's NPL ratio falling to 15.1 per cent from 18.7 per cent, Co-op Bank's to 13.9 per cent from 17.2 per cent and Equity's to 9.5 per cent from 13.7 per cent.

The dividend payouts tell the story of a sector that has found its escape route. KCB declared an interim dividend of Sh3.0 per share, a 50 per cent increase from the previous year, bringing the total payout to Sh9.64 billion.

NCBA declared Sh3.75 per share, up from Sh2.50, for a total payout of Sh6.18 billion, with the Kenyatta and Ndegwa families emerging as the biggest beneficiaries, collectively pocketing over Sh1.7 billion from the interim distribution.

Not all lenders are sharing in the bounty. Standard Chartered Bank Kenya saw net profit fall 16.8 per cent to Sh6.73 billion as the CBK's rate-cutting cycle squeezed lending margins. Net interest income declined 19.8 per cent to Sh12.27 billion, accounting for most of the profit erosion, though non-interest income provided some cushion, rising 15.9 per cent to Sh7.86 billion.

"As Kenyans confront hard times, local lenders have found that the path to prosperity leads beyond the border," said Ian Njoroge, a Nairobi-based analyst. "The question now is whether they can sustain this momentum if regional economies also begin to feel the pinch from global headwinds."

The contrasting results come as the banking sector faces ongoing scrutiny over elevated non-performing loans, which remain a concern across the industry despite improvements at some institutions. Analysts caution that asset growth that outruns credit quality improvement could  reintroduce provisioning pressures in the coming quarters.

For now, however, Kenya's top banks have proven that regional diversification is not just a hedge; it is a growth engine, analysts and bankers agree.

And with major expansion deals such as Nedbank's proposed majority takeover of NCBA expected to close in the second half of the year, the regional integration of Kenya's banking sector shows no signs of slowing.