Kenya’s banking sector may have recorded an improvement in asset quality in the 2025 financial year, but it continues to carry the highest non-performing loan burden in East Africa. The sector’s NPL ratio is estimated at about 15.5 percent, significantly higher than regional peers.
This level places Kenya well above countries such as Tanzania, which stands at 3.3 percent, Uganda at 3.7 percent, and Rwanda at 4.1 percent. The gap leaves Kenya more than 11 percentage points worse than comparable markets, highlighting a persistent challenge in the banking system.
The elevated NPL ratio reflects a mix of underlying factors, including legacy loan books and the after-effects of a high interest rate cycle. Additional pressure has come from stress in sectors such as construction and real estate, as well as delayed government payments to contractors, which have affected repayment capacity.
Within the sector, some banks have maintained relatively stronger asset quality positions. Standard Chartered Kenya and Stanbic Bank Kenya recorded NPL ratios of 5.5 percent and 8.0 percent respectively, making them the strongest performers in the reporting group. KCB Kenya showed improvement, reducing its ratio to 16.9 percent from 19.2 percent, while Equity Bank Limited stood at 11.5 percent.
While lower interest rates may help slow the creation of new non-performing loans, they are not expected to resolve existing ones. This is particularly the case where financial distress is linked to delayed state payments and long-stalled project cash flows.
As a result, asset quality is likely to remain a key theme in the banking sector in 2026. Although profitability may improve as interest rates decline and margins adjust, unresolved legacy exposures and pending government bills mean that non-performing loans will continue to shape the sector’s outlook relative to its East African peers.
