Banks' assets shrink to Sh7.6 trillion after two decades of growth

Kenya’s banking industry recorded its first decline in asset value in more than two decades, with commercial banks’ total assets falling by 1.6 percent in 2024 to Sh7.6 trillion.

This marks the first drop since 2002 and comes after the sector posted a strong 17.6 percent growth in 2023.

Official data shows that the last time the industry recorded a contraction was in 2001 when assets fell by 2.3 percent to Sh425 billion, a dip largely linked to the liquidation of Trust Bank.

The Kenya Bankers Association (KBA) attributed the latest decline to the harsh economic environment and challenging macroeconomic conditions.

“The contraction was more pronounced among large and medium-sized banks. Banks, which hold a dominant share of industry assets, saw their total assets shrink by 3.5 percent to Sh5.7 trillion, while medium-sized banks experienced a steeper decline of 17.4 percent,” said KBA.

Small lenders were the only group to post growth, expanding their assets to Sh576 billion.

According to KBA, this reflected the banks’ focus on niche markets as their main business strategy.

The Central Bank of Kenya (CBK) had earlier linked the fall in assets to a reduction in loans and advances by Sh160.3 billion, placements by Sh103.9 billion, other assets by Sh1.2 billion, and balances at the regulator by Sh1.1 billion.

Last year, loans and advances accounted for 48.1 percent of total assets, down from 49.4 percent in 2023, while investments in government securities rose to 27.8 percent.

This shift highlighted a cautious risk approach among banks as they rebalanced their portfolios.

Net loans and advances dropped to Sh4.1 trillion from Sh4.2 trillion in 2023, as deposit growth slowed sharply to 1.23 percent compared to 15.1 percent the previous year, closing at Sh5.81 trillion.

KBA pointed out that banks were tightening their lending policies in the face of persistent credit risks.

Non-performing loans remained high at over 15 percent in 2024, forcing lenders to focus on asset quality over rapid loan expansion.

The gross non-performing loans ratio was 16.4 percent in December, slightly lower than 16.5 percent in October and 16.7 percent in September, but still close to a two-decade high.

The elevated default levels were linked to high borrowing costs for households and businesses.

To ease pressure, CBK has cut its benchmark rate seven times since August 2024, bringing it down by 3.5 percentage points from a peak of 13 percent to 9.5 percent earlier this month.