Kenya’s biggest banks found a more profitable formula in the first half of 2026 as cheaper deposits and fewer loan defaults lifted earnings after nearly two years of expensive funding and elevated credit risk.
Nine of the 11 lenders listed on the Nairobi Securities Exchange that had released results for the six months ended June posted a combined net profit of KSh144.9 billion, up 16.9% from KSh124 billion a year earlier. The performance puts Kenya bank profits H1 2026 in sharper focus, showing how the Central Bank of Kenya’s rate-cut cycle has filtered through bank balance sheets while stronger lending and improving asset quality have added another lift to earnings.
The first half of 2026 reflects a banking sector that has moved beyond preserving capital during a difficult credit environment. Banks spent much of the previous two years managing higher funding costs, rising defaults and cautious lending, but the latest results show balance sheets working in a more favourable environment. Lower funding costs widened interest margins, loan recoveries reduced provisioning pressure and credit demand returned as borrowing became cheaper for businesses and households.
Why profits accelerated in the first half
The clearest driver of earnings was the way funding costs adjusted after the CBK reduced the Central Bank Rate from 13% at the start of its easing cycle in August 2024 to 8.75%, where it remained through the first half of 2026. Lending rates declined as expected, but deposit costs fell much faster, giving banks room to protect and expand their margins.
By June, the average commercial lending rate had eased to 14.4% from 15.3% a year earlier. Deposit rates fell to 6.8% from 8.4% over the same period, widening the industry’s interest-rate spread from 6.9% to 7.5%.
That repricing fed directly into bank earnings. Across the nine listed lenders, interest income rose 6.9% to KSh391.2 billion while interest expenses dropped 7.2% to KSh111.6 billion, pushing net interest income to KSh275.4 billion.
The outcome also validates a debate that dominated the banking sector earlier in the year. When the CBK pressed lenders to reduce borrowing costs, banks argued that loan pricing could not adjust immediately because funding structures take time to reprice. By the end of June, that adjustment had largely worked in their favour.
Deposit costs fell faster than lending rates
Individual banks illustrate how the broader trend translated into stronger results.
KCB Group posted KSh36.9 billion in net profit after expanding customer deposits by 15.1%, growing its loan book by 14.2% and lifting total assets to KSh2.299 trillion. Its improving funding position allowed the bank to support new lending while reducing pressure from bad loans.
Equity Group remained the biggest profit contributor during the reporting season, posting KSh45.5 billion in profit after combining stronger lending with growth in transaction-based income across its digital banking ecosystem. The bank also continued to improve asset quality, helping reduce the cost of loan provisioning.
Co-operative Bank, whose business has long been anchored in small businesses and co-operative societies, delivered one of the strongest earnings performances after benefiting from healthier loan recoveries and lower funding costs.
The results suggest that banks with large, stable deposit bases entered the second quarter with an advantage as funding became cheaper across the market.
Better loan recoveries reduced pressure on earnings
Improving asset quality became the second major driver of profitability.
Gross non-performing loans across the nine listed banks fell 8.9% to KSh554.3 billion, with Equity, KCB and Co-operative Bank recording some of the strongest improvements. Lower defaults meant banks could set aside less money for potential loan losses, allowing more income to reach the bottom line.
Equity cut its gross bad loans by more than one-fifth and improved its NPL ratio substantially after stronger recoveries, tighter underwriting and portfolio diversification. KCB also lowered its stock of troubled loans through recoveries, restructurings, settlements and write-offs.
The improvement was broad enough to benefit banks whose profits did not grow as quickly. Standard Chartered reduced provisions sharply even though its overall earnings declined, showing that cleaner loan books did not always translate into stronger profits when other revenue lines softened.
Lending picked up across households and businesses
The stronger operating environment did more than improve bank earnings. It also translated into fresh lending across the economy.
Private-sector credit growth reached 10.6% in June, the fastest pace in 28 months, as lower borrowing costs encouraged more businesses and households to seek credit.
Kenya Bankers Association data shows banks disbursed KSh245.06 billion in new MSME loans during the first half of 2026, adding another layer of evidence that lenders were putting capital back to work rather than simply benefiting from wider interest margins.
Equity dominated that segment with KSh82.3 billion in new MSME lending, followed by Co-operative Bank at KSh32.4 billion and KCB at KSh26.4 billion. Family Bank ranked fourth with KSh21.6 billion, ahead of NCBA at KSh17.7 billion.
Those rankings closely mirror the institutions that have maintained strong relationships with small businesses, although they also highlight an important constraint. The KBA says MSME lending still carries one of the highest default rates in the banking system, with NPL ratios remaining above 24% across the segment.
That means banks are expanding credit while continuing to manage significant risks in one of the country’s most important lending markets.
The recovery was uneven across banks
The half-year results still revealed important differences in how banks generated growth.
Diamond Trust Bank and NCBA recorded profit gains despite increases in gross bad loans, relying more on lending income and diversified revenue streams than on falling provisions. Family Bank delivered the fastest profit growth among the listed lenders even as its bad loans increased, reflecting continued pressure from borrowers whose repayments have not fully recovered from disruptions linked to the Covid-19 period.
Absa Bank Kenya’s results also differed from some of its peers. The lender continued to grow deposits and expand assets during the period, even as its earnings profile remained more restrained than the strongest performers.
Stanbic expanded its loan book significantly but converted relatively little of that growth into higher profits, illustrating that stronger lending alone was not enough to drive earnings without the same margin and provisioning gains seen elsewhere.
What comes next for Kenya’s banking sector
The first half of 2026 marks an important turning point for Kenya’s banking sector because the same forces that improved earnings are now showing up across lending activity.
Lower funding costs have widened margins, cleaner loan books have reduced the drag from provisions and stronger credit demand has started to rebuild loan books across the industry’s biggest players. At the same time, banks are relying more on transaction income, digital banking services and fee-based businesses alongside traditional lending.
The next phase will depend on whether competition pushes lending rates lower, how quickly deposits continue to reprice and whether borrowers can sustain the repayment improvements that helped reduce bad loans during the first half. For now, the earnings season shows that banks have entered a stronger operating environment than the one they were navigating just a year earlier, with profitability and lending both moving in the same direction.
Download the FREE Kaspersky Next Enterprise Security Guide here to explore the complete framework for simplifying security operations and building cyber resilience.
Go to TECHTRENDSKE.co.ke for more tech and business news from the African continent and across the world.
Follow us on WhatsApp, Telegram, Twitter, and Facebook, or subscribe to our weekly newsletter to ensure you don’t miss out on any future updates. Send tips to editorial@techtrendsmedia.co.ke
