Kenya’s banking industry sees strong growth in 2020

Kenya's banking industry balance sheet grew by 12.4% in 2020, reaching Ksh5.4 trillion from Ksh4.8 trillion in 2019, according to the Kenya Bankers' Association's State of the Banking Industry Report 2021. Despite the challenging year, the growth came as no surprise to many industry experts who have seen the sector display consistent strong performance over the past few years. Samuel Tiriongo, Director of the Kenya Bankers' Association Centre for Research on Financial Markets and Policy, highlighted that the growth was primarily driven by investments in non-loan assets, particularly government securities like T-Bills and bonds. This shift in asset composition helped banks maintain stability amidst constrained loan growth. The decision by many banks to retain dividends instead of issuing paybacks to shareholders was a strategic move to bolster their capital base and support ongoing credit extension efforts, especially in the face of the pandemic's impact. Non-performing loans saw a slight increase, rising to 14.5% from 12.5% in 2019, largely due to the economic effects of the pandemic. The containment measures implemented by the government, including movement restrictions and business suspensions, hit sectors like services, transport, and communication, affecting borrowers' ability to repay loans. Despite this uptick, there is a gradual deceleration in the worsening of asset quality expected, with the banking sector enhancing loan loss provisions to maintain stability. When it comes to emerging asset classes like cryptocurrencies, the banking sector in Kenya maintains a cautious approach, welcoming innovation but prioritizing risk management given the unclear regulatory frameworks. While crypto trading could be considered in the medium to long term, the current focus remains on navigating the challenges posed by the ongoing pandemic. The Central Bank of Kenya's decision to maintain the repurchase rate for the 10th consecutive time has been viewed positively by the banking sector. The move was seen as appropriate in light of emerging inflation risks and continued uncertainty surrounding the pandemic's impact on the economy. Overall, the resilience and adaptability displayed by Kenya's banking industry in 2020 lay a strong foundation for future growth and stability, with a cautious yet forward-thinking approach driving operational strategies.