Monetary Policy Committee
Central Bank of Kenya (CBK) headquarters. Kenyan banks have restructured Ksh1.12 trillion since the onset of COVID-19.


Fierce competition in the financial services sector and weakening interest income has forced tier one banks into riskier than usual lending, a report authored by the Kenya Bankers Association (KBA) has revealed.

The report dubbed Competition and Banking Sector Stability in Kenya warns that the emergence of bigger, faster and dominant non-traditional players remains an existential risk to the traditional bank, a revelation which boards a tough future for the banks which are already operating in a grim economy.

Pockets of systemic threats

According to the report, the risky behaviour adopted by the banks is manifested by double-digit rates of Non-Performing Loans (bad loans) which averaged 12.50% between 2016 and 2018.

“While the banking sector in Kenya has remained resilient even in the phase of global and domestic vulnerabilities, there have been pockets of systemic threats. While in some cases, this has been attributed to governance issues, the role of competition in driving risk-taking behaviour of some backs remains unclear,”

“Although the overall lending by fintechs as a percentage of total credit remains somewhat small, their influence has increased exponentially in the consumer segments, particularly in facilitating payments. In line with global evolution, many consumers in Kenya are switching to e-commerce, and more e-retail payments are made from mobile phones,” reads the report.

Rise of fintechs

KBA’s report further states that the ability of fintechs to offer better targeted, faster and cheaper financial services should sustain their edge over banks on this front. 

“Competition in banking has increased remarkably over the years; arising from both traditional and non-conventional sources including non-bank financial intermediaries, market-based financers and most recently from fin-tech companies,”

Read: Kenya’s 3 biggest banks angling for top spot

“For banks, this may mean a considerable reduction in fees and 8 commission income. Their entry into the credit business may further weaken interest income growth for banks. Whereas banks will continue to leverage partnerships with fintechs to enhance their product offering, the emergence of bigger, faster and dominant non-traditional players remains an existential risk to the traditional bank,” adds the report.

As it stands, there are more than 45 mobile lenders operating in the country who have in the last five years lent out billions in small loans to millions of Kenyans who could not have accessed the money from traditional banks before the fintech disruption.

See also: KCB Among Global Banks holding Trillions in Assets

In August this year, popular mobile lending app Tala announced that it had secured USD110 million (Ksh11 billion) Series D funding from international lenders as the company seeks to cement its status as the biggest mobile lender in the East African region with Kenya being its largest market.

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