Key questions answered by the article

  1. How did Kenya's top banks perform in the face of economic challenges?
  2. What is the outlook for H2 2023?

In August, Kenya's top nine banks, ranked by asset size, unveiled their financial results for the first half of FY2023. Against the backdrop of soaring inflation rates and a depreciating currency, these financial players found themselves at the forefront of economic volatility. 

In this analysis of their H1'2023 performance, we delve into three pivotal challenges posed by this inflationary environment: the impact on operational costs, the effect of rising interest rates on banks' margins, and the surge in credit risk brought about by inflation and tightening monetary policies.

Interest rates

In H1 2023, Kenyans experienced a rising cost of living due to higher inflation rates, averaging 8.5% compared to 6.3% in H1 2022. Responding to this challenge, the Monetary Policy Committee (MPC) held an emergency meeting in June and raised the Central Bank Rate (CBR) by a cumulative 300 basis points to 10.5%. 

The transmission of the higher interest rate policy triggered cautious and tighter lending conditions by banks as the industry monitored the evolution of non-performing loans amidst elevated operational costs for borrowers and a slowdown in economic activity. 

The average interbank