How Kenyan banks are becoming the engine behind EA economic growth

Kenya’s largest bank by customers, Equity Group.[Courtesy]

Kenya’s economic growth is trailing its East African peers, raising questions about why the region’s largest economy has struggled to keep pace.

Several explanations are behind this, one being that Kenya is a lower-middle-income country, a stage at which countries can face slower growth as they transition from low-income to higher-income status.

Economists refer to this challenge as the “middle-income trap”, a situation where economies struggle to sustain rapid growth after reaching middle-income levels.

The World Economic Forum explored the phenomenon in a September 2024 article titled "The Middle Income Trap", examining why some economies struggle to maintain the momentum needed to progress to higher-income status.

According to the African Development Bank (AfDB), the East African economy is projected to expand at 5.9 per cent in 2026.

While 5.9 per cent is higher than Kenya’s projection of 4.9 per cent, the role of  Kenyan banks in fuelling this regional growth is undeniable.

Perhaps looking at the potential of economies in the region, Kenyan lenders have in recent times been aggressively expanding their footprints in new regional markets such as the Democratic Republic of Congo (DRC), taking advantage of these tailwinds.

This explains Equity Group’s Sh774 billion Africa Recovery and Resilience Plan unveiled over a year ago.

The bank already has a considerable footprint in the region, including Kenya, Uganda, Tanzania, Rwanda, DRC and South Sudan, and it is actively pursuing Zambia and Mozambique.

I&M Group has revealed plans to cement its regional footprint.

Co-operative Bank is re-organising its structure to create Co-op Bank Group as the holding company, signalling a regional expansion.

Even the latest entrant to the Nairobi Securities Exchange (NSE), Family Bank, has similar regional plans, though the lender has not revealed which market it will land first.

Kenyan banks are well aware of the financing needs grappling not only the country, but also the region and are eager to position themselves.

“East Africa’s development financing constraints are threefold: Limited domestic resource mobilisation, shallow financial intermediation, and persistent leakages through public financial management inefficiencies and illicit financial flows,” says AfDB in the East Africa Economic Outlook Report 2026.

The July 2026 report states that domestic savings and tax revenues remain insufficient to finance the region’s growing investment needs, with gross capital formation averaging about 18 per cent of the gross domestic product (GDP), well below middle-income benchmarks exceeding 33 per cent of GDP, while tax revenues in many countries remain below 17 per cent of GDP.

“Financial intermediation also remains limited, reflected in shallow capital markets, low pension and insurance asset depth, and private sector credit that remains below 35 per cent of GDP in many countries,” it adds.

While releasing the bank’s financial results for first-half of 2026, Equity Group Holdings Chief Executive James Mwangi said the plan in conquering the continent and for it to meet its financial needs, it has to evolve beyond a traditional bank.

“As we progress towards our Africa Recovery and Resilience Plan (ARRP) 2030 ambitions, we are evolving beyond traditional banking into an integrated tech-enabled financial institution that mobilises capital, connects ecosystems, and accelerates inclusive, sustainable prosperity across Africa,” he said. “Equity’s technology-enabled transformation is now firmly embedded across the Group.”

This has been seen in how the bank approaches banking business in some markets such as Tanzania, where, beyond providing finance, Equity is using its regional network and trade expertise to facilitate connections between Tanzanian businesses, investors and markets. Its focus is largely on small and medium enterprises (SMEs).

“These engagements provide businesses with an opportunity to move beyond traditional financing and explore commercial relationships that can support expansion, investment and access to new markets,” says the bank.

Tanzania’s economy is projected to grow at 5.9 per cent this year.

The bank has also been instrumental in supporting Rwanda to position itself as a leading MICE destination. This is through financing, SME support and trade and investment platforms.

The services industry is a major indicator in Rwanda’s economic growth, which is estimated to expand by 6.8 per cent in 2026.

Uganda, which is expected to post double-digit growth this year, is also a recipient of support from Kenyan lenders, with Equity having expressed interest in its pharmaceutical sector.

“Equity’s presence across East and Central Africa provides a platform for businesses to access capital while building connections to customers, suppliers, investors and markets,” the bank says.

KCB Group, Kenya’s largest bank by asset base and Equity Group Holdings' rival in the regional expansion strategy, has also positioned itself as a force.

Like Equity, KCB is taking the technology approach to connect its footprints and meet customers’ needs.

By getting a piece of Riverbank and Pesapal, the bank aims to cement its digital footprint in the region. KCB Group explains in its financial year 2025 investor briefing how Riverbank is a critical financial solution provider for SMEs, including schools, hotels, transport providers and religious institutions.

Its presence in Kenya, Uganda and Rwanda is an edge in its conquest. Through Pesapal, which is licensed in Kenya, Uganda, Tanzania, Rwanda and Zambia, KCB aims to scale digital payments and offer value-added solutions to businesses across East Africa.

“The East African region is poised to be the fastest-growing region in Sub-Saharan Africa in 2026. GDP is projected to grow by 5.8 per cent,” the bank says in the full-year briefing. “

“Private sector credit growth is improving on accommodative monetary policy and increased infrastructure investment across EAC.”

The entry into these markets also comes with benefits on the banks’ balance sheets. For example, in its half-year financial results for 2026,  I&M Group generated Sh6.1 billion, a 30 per cent growth, through cross-border business development initiatives

Net loans and advances for the corporate and institutional banking segment closed the period at Sh225 billion compared to Sh200 billion in the same period in 2025.

“Loans and advances witnessed strong growth across all subsidiaries, particularly Rwanda that recorded a 50 per cent increase,” the bank says.

“Deposits grew at 30 per cent year-on-year as a result of a drive across all subsidiaries, with Rwanda recording the strongest growth of 40 per cent.”

It adds that operating income for retail and business banking increased by 14 per cent to Sh14 billion, driven by subsidiary performance, particularly Rwanda and Uganda.

“Retail and SME loans continued to witness strong growth across all subsidiaries.  Deposits grew at nine per cent year on year, driven primarily by strong deposit mobilisation in Kenya, Uganda and Rwanda,” the bank says.