Cytonn’s, Kenya’s Listed Banks Q3'2025 Report shows earnings growth slowed as banks leaned on asset quality and net interest income
Cytonn Investments released its Q3’2025 Banking Sector Report, themed “Earnings Resilience Tested as Interest Income Softens,” ranking Absa Bank Kenya as the most attractive listed bank. The ranking is based on a strong franchise value score, reflecting broad business strength across 13 metrics, and a high intrinsic value score, indicating strong potential for investment returns. (See the full rankings and read the full report here )
The report analyzed the Q3’2025 results for Kenya’s 10 listed banks. Core earnings per share grew by a weighted average of 7.6%, down from 24.6% in Q3’2024, reflecting weaker performance driven mainly by a 3.3% decline in non-funded income. This was partially offset by 13.4% growth in net interest income. Asset quality improved, with the weighted average gross non-performing loan ratio falling 0.3 percentage points to 13.2% from 13.5% a year earlier, though it remains above the 10-year average of 11.9%.
Hezron Mwangi, Investment Analyst at Cytonn Investments, commented: “The sector faced challenges from softer non-interest income, but net interest income provided support amid an easing interest rate environment.”
Three key factors shaped the banking sector in Q3’2025: regulation, digitisation, and the interest rate environment.
Although the Central Bank of Kenya (CBK) introduced a revised risk-based credit pricing framework in August 2025, anchored on the Kenya Shilling Overnight Interbank Average (KESONIA), most commercial banks have continued to reference the Central Bank Rate (CBR) for variable-rate loans. Major lenders, including KCB, Equity, Absa, NCBA, and DTB, announced that from December 1, 2025, they would apply CBR plus a customer-specific risk premium, citing ongoing systems testing and operational readiness challenges as reasons for delaying adoption of the more volatile interbank-based benchmark. To date, only Co-operative Bank and Kingdom Bank have committed to fully adopting KESONIA.
Meanwhile, regulatory pressure intensified following the enactment of the Business Laws (Amendment) Act, 2024, which raised the minimum core capital requirement for commercial banks to Kshs 10.0 billion, up from Kshs 1.0 billion. The new thresholds will be implemented gradually through 2029, prompting several banks to pursue rights issues, private placements, and shareholder capital injections to meet interim requirements. Smaller and foreign-owned banks have largely relied on parent company support, while weaker institutions face heightened consolidation pressure. Notably, Paramount Bank and ABC Bank have moved through rights issues, while Credit Bank has secured shareholder commitments under a broader private placement. Several foreign-owned lenders, including Access Bank Kenya, UBA Kenya Bank, CIB International Bank, and Ecobank Kenya, are relying on parent capital support. In contrast, Consolidated Bank remains undercapitalised, with a negative core capital position exceeding Kshs 700 mn, highlighting the likelihood of further consolidation across the sector.
“The regulatory environment is accelerating capital strengthening and reshaping competitive dynamics in the sector,” said Christine Sheila, Investment Analyst Coordinator at Cytonn Investments. “While the transition may be uneven in the near term, these measures are expected to enhance resilience, support long-term stability, and position the sector for sustainable growth.”
CBK’s decision to lift the moratorium on licensing new commercial banks is also expected to stimulate competition and innovation over the medium term.
ABSA Bank retained its position as Kenya’s most attractive listed bank in Q3’2025, reflecting stronger operating efficiency and sustained profitability despite a more challenging earnings environment. The bank’s cost-to-income ratio improved significantly to 48.0% from 55.0% in Q3’2024, while return on average equity edged up to 26.8%, underscoring the strength of its franchise and balance sheet resilience.
Equity Bank emerged as the quarter’s strongest climber, rising four places to rank second from sixth in Q3’2024. The improvement was driven by tighter cost management and stronger margins, with the bank reducing its cost-to-income ratio to 58.0% and expanding its net interest margin to 7.9%, highlighting improved earnings quality amid easing interest rates.
In contrast, Stanbic Bank recorded the sharpest decline, sliding six places to tenth position from fourth a year earlier. The drop reflected pressure on profitability, with return on average equity falling to 18.5% from 22.2% year-on-year, alongside a rise in operating costs, which saw the cost-to-income ratio (excluding LLPs) increase to 45.6%.
Overall, the ranking movements reflect a sector increasingly differentiated by cost efficiency, balance sheet strength, and the ability to defend margins, as banks adjust to softer earnings growth and evolving regulatory and interest rate conditions. Read the full report here
Source: Cytonn Research
