CREDIT IS THE MAJOR RISK FACING KENYA’S BANKING INDUSTRY, EVEN AS IT REMAINS RESILIENT.

Mrs. Yinka Adelekan, Group Managing Director, Agusto & Co. delivering the keynote address as she officially launched the 2023 Kenya Banking Industry Report.
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Agusto & Co. identifies the strong and weak areas of our banking industry in a new research

By George Gichuki

Kenya’s banking industry is the most vibrant in the East African region and serves as the economic engine for other sectors. It is against this background that Agusto & Co., a leading Pan African credit rating agency launched the 2023 Kenya Banking Industry Report early this week. The theme of this incisive report was: “Enhancing banks’ resilience and sustainability amid multiple macro-economic shocks.’ This follows the launch of a similar report for Kenya’s microfinance industry in 2022 by the leading Pan African credit rating agency. The firm has a footprint in Nigeria, Kenya and Rwanda.

Key highlights

One of the major highlights of this report was that as at 31st December 2022, the banking industry’s total assets stood at Kshs. 6.5 trillion. Nevertheless (as per the financial year ending in December 2022) accounting for over 53.5%, the said assets mostly belong to the top five banks in the country. In addition, personal and household sector accounted for the largest portion (27%) of the industry’s gross loans in 2022. The report also covered the banking industry’s size and structure, regulatory environment, the growth drivers, macro-economic environment, opportunities in the industry and emerging issues as well as the risk rating and outlook.

From Left: Mr. Ikechukwu  Iheagwam, Regional Director, East Africa Agusto & Co. Limited, Mr. Ayokunle Olubunmi, Head Financial Institutions Ratings, Agusto & Co. , Ms. Anzetse Were, Senior Economist, FSD Kenya, Mrs. Yinka Adelekan, Group Managing Director, Agusto & Co. , Mr. Oscar Njuguna, Acting  Chief Executive Officer, Nairobi International Financial Centre and Mr. Samuel Tiriongo, Director of Research and Policy, Kenya Bankers Association during the launch of 2023 Kenya Banking Industry Report.

Speaking during the launch, Agusto & Co.’s Group Managing Director, Mrs. Yinka Adelekan said: “In coming up with the banking industry report, Agusto & Co. sighted a gap in the market where independent research and expert opinion on the performance of the Kenya banking industry has not been provided.”  She added: “Nonetheless, Agusto & Co. recognizes that several entities conduct research and produce reports on the Kenyan banking industry, including the Central Bank of Kenya (CBK) and Kenya Bankers Association (KBA). However, given our unique proposition of assigning each industry a risk rating, we had the opportunity to rate the industry and determine its creditworthiness given the pivotal role it plays in catalyzing the economy.”

Mrs. Yinka further said that the assigned rating takes into cognizance the country’s risk profile as well as the industry’s relevance and financial condition. The firm also assessed key trends and developments, as well as emerging issues for the Kenya banking Industry, especially with the growing importance of sustainable and responsible business practices globally.

From Left: Ms. Anzetse Were, Senior Economist, FSD Kenya, Mr. Oscar Njuguna, Acting  Chief Executive Officer, Nairobi International Financial Centre and Mr. Samuel Tiriongo, Director of Research and Policy, Kenya Bankers Association in a panel discussion during the launch of 2023 Kenya Banking Industry Report.

Digital

As digitization continues  to take centre stage in the growth and expansion of various businesses both locally and globally, the research by Agusto & Co. found out that there is imminent opportunity for mergers, acquisitions and collaborations between banks and licensed digital lenders in the near future. But even as the industry continues to be resilient in the wake of biting economic shocks, the high ratio of non-performing loans (which stood at 13.9% in 2022) is a major risk. “This calls for its players to device ways for mitigating this risk,” said Mrs. Adelekan. The other key finding of this research was that with over 73.7 million mobile money accounts as at March 2022, mobile banking is the most widely used delivery channel in the banking industry.

In line with the global trends and best practices, Mrs. Adelekan observed that many players in Kenya’s banking industry have increased their investment in Environmental, Social and Governance (ESG) frameworks. “Today, the whole world has realized that besides risks and returns, impact on the environment is a critical factor in an investment,” she said.

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