Bank consolidations, slow profits and high loan defaults

As the virus spread, disrupting social economic activities, the government announced emergency measures to safeguard households.

In Summary
  • The rate of NPL expected to hit 15 per cent
  • Banks restructured loans worth Sh1.38 trillion as at October 31
CBK Headquarters
CBK Headquarters
Image: FILE

Lenders started the year with a lot of optimism, with banking sector analysts projecting better returns on repealed interest cap law.

Almost all tier-one banks reported improved net earnings for the first quarter ended March 2020, with KCB Group for instance recording eight per cent growth to Sh6.3 billion compared to Sh5.8 billion same period the previous year. 

Even so, Equity Bank's profits for the same period plummeted 14 per cent to Sh5.3 billion, with the lender's loan loss provision increasing by 10 folds to Sh3 billion compared to a similar period in 2019. 

Co-operative Bank on other hand reported a marginal 0.2 per cent reduction in profit after tax to Sh3.58 billion down from the Sh3.59 billion posted the previous year.

Almost all local lenders warned that they expect their half-year results to drop further as the effects of coronavirus, which had been detected globally in January but recorded the first victim in Kenya in March took a toll on the economy. 


As the virus spread, disrupting social economic activities, the government announced emergency measures to safeguard households.

The Central Bank of Kenya (CBK) also introduced some emergency measures for borrowers whose loan repayments were up to date as of March 2. 

It for instance asked banks to offer six months moratorium on loans and asked the credit bureau to stop blacklisting defaulters for six months to September and delist those with arrears below Sh1000. 

Furthermore, all fees associated with checking balances for mobile digital platforms were lifted. All charges for transactions between transfers between mobile money wallets and bank accounts were also waived.

Those measures and dwindling revenues for households had an overriding effect on banks earnings, with loan defaults hitting roof.  According to CBK, average NPLs hit 14 per cent.

Reputable global credit rating agencies: Moody's and Fitch have projected the loan default to hit 15 per cent by the end of the year.

Wile  loan default rate in Kenya  rose steadily between September 2015 to June 2018, and have hovered between 12-13 per cent of gross loans for the following two years, it has grown sharply during Cpvid-19 era. 

This has forced banks to set aside a sizable chunk of cash in loan loss provision in accordance with IFRS9. 

According to CBK, total loans amounting to Sh1.38 trillion (or 46.5 percent of the total banking sector loan book of Sh2.97 trillion) had been restructured by the end of October, in line with the emergency measures it announced at the onset of the coronavirus pandemic to provide relief to borrowers.

Although the government has eased Covid-19 restrictive measures, allowing business continuity, end of year results are likely to reflect the virus strain, with some lenders likely to report losses.


Local banks' ability to acquire extra assets in the midst of the Covid-19 pandemic that has taken a toll on the global economy illustrates the resilience.

Although the merger deal between the Commercial Bank of Africa (CBA) and NIC Group Plc to form NCBA was finalised late last year, the most transition has happened this year, despite tough operating environment. 

So is the acquisition of the National Bank of Kenya by KCB Group that was approved in September but most transitory details finalised this year.

It was also during the period that the Moi  linked Transnational Bank was bought off by the Nigerian tier one lender Access Bank.

The deal saw the new owner inject additional capital in Transnational, which had 0.25 per cent stake in December 2018, as it seeks a return to profitability.

In August, Equity Group completed the acquisition of a 66.53 per cent stake in the Banque Commerciale Du Congo (BCDC) at $95 million (Sh10.2billion), pushing its assets to Sh944.9 billion in the third quarter compared to Sh744.4 billion same period last year. 

Co-op Bank Group, another tier-one lender in the country,  saw its total assets grow by Sh70.1 billion (16 per cent) to Sh510.9 billion in nine months to September compared to Sh440.8 billion in the same period last year.

This, after it finalised the acquisition and rebranding of Jamii Bora to the Kingdom during the quarter. 

Late last month, KCB Group  signed a deal with London-listed financial services firm Atlas Mara Limited to buy stakes in it's banking units in Rwanda and Tanzania

The buyout of London-based Atlas Mara Limited's assets in Rwanda and Tanzania by KCB comes five months after local rival Equity Bank Group dropped acquisition plans, citing strategy change due to Covid-19. 

Under the proposed deal KCB said it will the acquire a 62.06 per cent stake in Banque Populaire du Rwanda Plc and a 100 per cent stake in African Banking Corporation Tanzania.

Equity had signed an agreement with Atlas Mara to buy 62 per cent of the share capital of Rwanda’s Banque Populaire du Rwanda and 100 per cent of African Banking Corporation of Zambia, African Banking Corporation Tanzania and African Banking Corporation Mozambique.

The mergers and acquisitions are likely to see Kenya get its first $10 billion (Sh1 trillion) asset bank by end of the financial year even as the banking sector hopes for the best in 2021.