Major Risks In The Kenyan Banking Sector In 2022

Kenya’s banking sector has been growing over the years. Thanks to the advancement in technology, Kenyan commercial banks are at their peak. The majority have embraced digital banking, shutting down physical branches and integrating various systems.

Just like any other sector, the Kenyan banking sector often faces a myriad of risks and this year is no different. According to Renaissance Capital, in their latest report, Kenyan banks have at least six risks to worry about this year even as it takes shape.

General Elections

Kenya will be holding a general election this year to elect the President, Governors, Senators, MPs, MCAs, Women Reps among others. President Uhuru Kenya is set to retire and usher in a new government. An election year in Kenya is historically bad for business.

Kenyan banks will face political risks that could affect the macro macro-environment, loan growth, asset quality, transactional activities, among others. Investors are also like to adopt the wait-and-see approach during this year.

Covid-19 Pandemic

The Covid-19 pandemic has been around for more than two years. It is easier to say that Kenyan banks have adopted mechanisms to wade through the storm but that does not mean that they are out of the woods. Despite the fact that there are vaccines in place, the virus keeps on mutating.

Although there has been a strong economic rebound (GDP up 9.9 percent on a YoY in 3Q21), recovery could still be affected by the various mutations of the virus and the effect this has on global supply chains and operations.

Asset Quality

Asset quality continues to be a key risk especially given the current political landscape and the economic shocks that could still occur. So, depending on the kind of assets that a bank has invested in, will determine how the bank will wade through the year.

Policy Rate Change

Although there is an upside risk to inflation, a policy rate change might be unlikely in the near term. CBK’s speedy approval of the risk-based pricing template could push margins up and improve the returns profile of the Kenyan banks.

Competition from Fintechs

The banks could face intense competition from fintechs and telcos while pursuing their respective digital strategies. Banks will either seek partnerships with the giant fintechs and telcos or come up with their own platforms, the way Equity Bank did to sail through.

Regional Diversification

The regional diversification that the banks have done in recent times creates political and socio-economic risks. For example, DRC’s political landscape has been historically volatile; Equity has a significant subsidiary there and KCB is
currently exploring options. At the same time, there are also execution risks in the implementation of the banks’ regional strategies.

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