Rising Infrastructure Development in East Africa Offers Opportunities for Kenyan Banks
Kenyan banks with regional operations are looking to the growing infrastructure development in East Africa as a key driver of sustained profitability. This comes amid concerns about slower lending and reduced economic activity, which have been exacerbated by the ongoing crisis in the Middle East.
In 2025, major Kenyan banks such as KCB, Equity, Co-operative, I&M, and DTB reported strong profit growth, leading to substantial dividends for their shareholders. The success of these institutions can be attributed largely to the performance of their regional branches, which have played a significant role in boosting overall profits. This reflects the benefits of cross-border expansion and diversification of sovereign risks.
Ms. Melodie Gatuguta, a research associate at Standard Investment Bank, highlighted that the banks’ 2025 performance was driven by several factors. These included reduced loan loss provisions, liability repricing, where deposit rates were lowered faster than lending rates, and diversified revenue streams from non-banking activities such as custody, insurance, and wealth management. Additionally, the integration of digital banking and payment systems ecosystems contributed significantly to their success.
“Generally, the subsidiaries had a strong performance backed by strong economic growth, and their returns were somewhat squeezed by translation impact against the Kenya shilling,” she said. “South Sudan went back into hyperinflation, though it also benefited from the resumption of crude oil trade.”
The Kenya Bankers Association (KBA) acknowledged the challenges posed by the war in the Middle East, particularly its potential to constrain interest rate declines and slow down private sector recovery. However, the association remains optimistic about the future of the banking sector.
“We recognize the headwinds from the war in the Middle East, particularly its effects of potentially constraining declines in interest rates and slowing down recovery in the private sector, and general slowdown in investments as investors adopt a wait-and-see approach,” said Raimond Molenje, CEO of the KBA. “We still project robust banking performance in 2026 as banks remain open to explore opportunities in financing virtually all economic sectors. Diversification will be key.”
With easing interest rates, stable inflation, and exchange rates, Kenyan banks are well-positioned to increase lending to businesses. They are expected to disburse an additional Ksh326 billion ($2.52 billion) in new loans.
“Kenyan banks continue to expand to the region to take advantage of opportunities there. With strong experience in deploying innovative digital products and a good capital base, the banks are shaping lending practices in the region,” Mr. Molenje added.
Escalation of Conflict in the Middle East
The United States and Israel have intensified air strikes across Iran, with US President Donald Trump threatening to destroy Iran’s main oil export hub and energy infrastructure if no deal is reached with Tehran for a ceasefire soon.
The conflict began on February 28 when US and Israeli forces launched airstrikes on Iran, resulting in the death of Supreme Leader Ali Khamenei and several other top officials, along with hundreds of civilian casualties. In response, Iran launched missile and drone strikes against Israel, US bases, and US-allied countries in the Middle East.
President Trump has stated that the burden lies on Tehran to agree to end the war, which has now entered its second month, or face the destruction of its energy resources, including power plants and oil hubs. However, Iran remains defiant, calling US demands “unrealistic” and continuing attacks on Israel and Gulf countries.
Experts at Oxford Economics warn that the war has led to the closure of the Strait of Hormuz, a critical global chokepoint serving as an artery for 20 percent of the world’s oil supply and 30 percent of maritime trade. This has put upward pressure on oil prices, with Brent crude projected to average $113 per barrel in the second quarter of this year.
“The release of strategic reserves and inventory reductions will become less effective. The lower they fall, the longer the Strait of Hormuz is closed, putting additional upward pressure on oil prices and cost for the global economy,” said Ryan Sweet, Global Chief Economist at Oxford Economics. “Tankers passing through the strait are 98 percent below what was seen the week before the war began. We expect traffic to increase to about 50 percent in May and June, but risks remain weighted to the downside.”
Impact on Kenya’s Economy
The Middle East conflict has also created ripple effects in Kenya. Experts at the Institute of Economic Affairs (IEA) estimate that Kenya could lose $1.07 billion or Sh138.565 billion (41.44 percent) of its exports to Asia due to the disruption caused by the conflict. This includes losses from key markets such as the UAE, Saudi Arabia, Iran, and Bahrain.
On the import side, Kenya could lose supplies worth $3.57 billion (Ksh465.5 billion) from the region. The Persian Gulf, a strategically vital marginal sea of the Indian Ocean, serves as a critical source of energy and industrial imports for Kenya. The war presents an asymmetric risk to Kenyan imports compared to its exports.
The situation underscores the interconnectedness of global economies and the far-reaching consequences of regional conflicts. As Kenyan banks look to expand in East Africa, they must also navigate the uncertainties brought about by the Middle East crisis.
