Kenyan banking sector stable despite high non-performing loans: Moody’s

However, the firm warns that Kenya's banks profitability may soften in 2026 from a 2025 peak, but will remain solid. Moody’s points out that the decline may come from non-performing loans, which will remain high.

The latest Moody's rating of Kenya’s banking industry has placed the sector at B3, representing a stable outlook.

The rating agency notes that its decision is pegged on steady macroeconomic conditions, solid capital buffers and gradual improvement of the sector’s asset quality.

According to Moody’s, the sector-wide non-performing loan (NPL) ratio will decline toward 15 percent over the next 12–18 months, from the 16.5 percent recorded in November.

This, it says, will be supported by lower lending rates and accelerating credit growth, with private-sector lending growth recovering.

But despite the decline in the NPL ratio, non-performing loans remain high by global and regional standards.

Banks’ expanding regional footprint will continue to enhance revenue and risk diversification, with capitalisation also expected to remain strong.

Moody's further notes that profitability for Kenyan banks will soften in 2026 but will remain higher compared to other lenders in the region.

It expects return on assets to decline toward 3.3 percent over the outlook period as net interest margins narrow on lower government security yields.

The outlook also argues that funding and liquidity conditions for Kenyan banking will remain stable, with deposit growth expected to remain on an upward trajectory.