Banking Sector H1’25 Report

Overview
Our H1 2025 Banking Sector Report presents an in-depth analysis of Kenya’s financial institutions amid evolving macroeconomic conditions and shifting capital markets. The report highlights resilient fundamentals, robust capital buffers, and compelling valuations that position the sector for sustainable earnings growth and dividend stability.

Key Highlights

• Positive Sector Outlook: We maintain a “Buy” recommendation on the Kenyan banking sector, supported by strong profitability and solid capital adequacy levels across major lenders.
• Attractive Valuations: The sector trades at a P/TBV of 0.74x, below its historical average of 0.94x, presenting significant upside potential.
• Dividend Strength: Yields range between 6.6%–11.4%, with banks maintaining consistent payout histories.
• Diversifying Revenue Streams: Leading institutions are expanding into investment banking and asset management, enhancing fee income and return on equity.
• Key Risks: Elevated non-performing loans (NPLs) and foreign exchange margin compression could pressure short-term profitability, though mitigated by prudent risk management and strengthened provisions.
• Top Picks: Equity Group (EQTY) and KCB Group (KCB) stand out as Strong Buy opportunities, supported by superior expected returns of 29.4% and 25.9%, respectively.

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