Kenya’s banking sector entered 2026 with a larger balance sheet, stronger capital buffers and higher profits, even as banking continued to move away from traditional branches and cash towards digital channels, artificial intelligence and technology-driven lending.
The Central Bank of Kenya’s Bank Supervision Annual Report 2025 shows that total net assets in the banking sector rose by 10.3 per cent during the year, from Sh7.57 trillion in December 2024 to Sh8.35 trillion in December 2025. Customer deposits increased by 11.6 per cent to Sh6.12 trillion, while profit before tax jumped 17.7 per cent to Sh306.3 billion.
The growth came against a domestic economy that expanded by 4.6 per cent in 2025, slightly below the 4.7 per cent recorded in 2024. CBK described the year as one of continued uncertainty, with geopolitical tensions, trade-policy uncertainty and climate-related shocks weighing on the global environment.
Yet the banking system itself remained well buffered.
Stronger Banking System
The sector’s total capital adequacy ratio stood at 20.7 per cent at the end of 2025, comfortably above the regulatory minimum of 14.5 per cent. The average liquidity ratio was 59.3 per cent, compared with a statutory minimum of 20 per cent.
The balance sheet also expanded significantly. Government securities increased by Sh384.5 billion, or 18.2 per cent, while net loans and advances rose by Sh240.5 billion, or 6.6 per cent. Balances held at the Central Bank increased by Sh188.9 billion, equivalent to 61 per cent.
Loans remained the largest component of bank assets, accounting for 46.5 per cent of total assets, while government securities accounted for another 29.9 per cent.
The rise in profits, however, was not simply a story of banks generating more income. Total banking-sector income actually fell by 2 per cent to Sh1.03 trillion. Profit before tax rose because expenses fell by a larger amount — Sh67.4 billion — than income, which declined by Sh21.5 billion.
That distinction matters. The 2025 profit surge was therefore driven substantially by lower costs, including a reduction in interest expense, rather than simply by faster growth in revenues.
Credit Problem Has Not Disappeared
The expansion of lending was accompanied by a modest improvement in asset quality. The stock of non-performing loans stood at Sh696.9 billion at the end of 2025, virtually unchanged from Sh697.3 billion a year earlier.
But because gross lending increased, the ratio of gross NPLs to gross loans fell from 17.1 per cent to 16.0 per cent, with CBK attributing the improvement to repayments, recoveries and increased new lending.
In other words, the headline improvement in asset quality was driven more by the denominator growing than by a dramatic reduction in the absolute stock of troubled loans.
The mortgage market tells a similar story. Outstanding mortgage loans increased 10 per cent to Sh307.2 billion, while the number of mortgages rose only 2.5 per cent to 30,762. The average mortgage therefore increased from Sh9 million to Sh10 million.
At the same time, non-performing mortgage loans increased from Sh46 billion to Sh50.2 billion. Their share of gross mortgage loans nevertheless edged down from 16.5 per cent to 16.3 per cent.
This suggests a credit market that was expanding, but where affordability and repayment capacity remained important constraints.
Branch No Longer At The Centre
Perhaps the clearest structural change in the report is the continued movement towards digital finance. Kenya had 38 commercial banks at the end of 2025, alongside 14 microfinance banks, 195 licensed digital credit providers, 33 money remittance providers and 88 foreign-exchange bureaus.
Commercial bank branches increased modestly from 1,573 to 1,611 during the year, but the number of ATMs fell from 2,289 to 2,228.
CBK attributes the decline partly to customers increasingly accessing financial services through mobile and digital channels, and agency banking presents an even clearer picture.
The number of bank agents increased 4.7 per cent to 93,341 in 2025, yet transactions through those agents fell 20.2 per cent to 113.5 million with the value of transactions declining from Sh1.70 trillion to Sh1.47 trillion.
CBK links the decline to growing competition from mobile money and internet banking. The implication is significant: access points are still expanding, but customers are increasingly using digital channels for transactions that previously required an agent, ATM or branch.
Next Banking Battleground
The report also provides a glimpse into what the next generation of banking will look like. CBK’s 2025 Innovation Survey found that 71 per cent of surveyed institutions considered themselves “better banks” — institutions using fintech to digitise and modernise existing banking operations. Sixty-seven per cent had a dedicated innovation function.
Artificial intelligence is already moving from experimentation into specific banking functions. Thirty per cent of institutions surveyed had formal AI strategies, while 62 per cent had data strategies and dedicated data/AI teams. The leading AI applications were credit-risk assessment, used by 65 per cent of institutions; cybersecurity, 54 per cent; and customer service, 43 per cent.
The direction of travel is even clearer in the institutions’ plans: 83 per cent indicated they were likely to adopt AI for credit-risk assessment, while 82 per cent pointed to future adoption in cybersecurity, customer service and e-KYC.
But the technology comes with its own risks. Data quality, governance, cybersecurity and dependence on third-party technology providers emerged as key concerns. In the innovation survey, 82 per cent of commercial banks identified cyber risk as their leading innovation-related risk.
CBK is moving towards a more technology-enabled supervisory model, including the development of near-real-time supervision through its Granular Data Integration project.
Regional Financial Institutions
The transformation is not confined to Kenya. Kenyan banks continued expanding across East and Central Africa, with subsidiaries operating across Tanzania, Uganda, Rwanda, Burundi, South Sudan, the Democratic Republic of Congo and Mauritius.
Their regional branch network increased from 586 branches in 2024 to 592 in 2025. Their subsidiaries employed 13,258 people, while total assets rose from Sh2.15 trillion to Sh2.46 trillion.
Combined gross loans in these markets rose 17 per cent to Sh1.13 trillion, while deposits increased to Sh1.83 trillion. Regional subsidiaries generated Sh87.62 billion in profit before tax, up 19.4 per cent from 2024. The Democratic Republic of Congo accounted for 49.3 per cent of those profits.
The Kenyan banking story is therefore becoming both more digital and more regional.
The 2025 report captures a sector that is financially stronger than it was a year earlier, but whose competitive landscape is also being reshaped by mobile money, digital lending, artificial intelligence, fintech partnerships and increasingly sophisticated regulation.
The bank of the future may still have a branch, an agent and an ATM. But increasingly, its most important infrastructure will be invisible: data, algorithms, digital platforms and the ability to manage the risks that come with them.
