Kenya’s banking sector, widely regarded as one of East Africa’s strongest financial systems, is facing mounting risks from corporate defaults. A May 2025 stress test by the Central Bank of Kenya (CBK) revealed the extent of this vulnerability, showing how concentration in large borrowers could destabilize the industry if defaults escalate.
Stress Test Findings and Capital Exposure
The test showed that Kenya’s six largest banks could suffer a Sh190.4 billion capital shortfall if their top three borrowers default. If these defaults occur by December 2025, the sector’s total capital requirement would rise to Sh220.7 billion to meet regulatory standards.
Tier I banks, including KCB, Equity, Co-operative Bank, NCBA, Absa, Stanbic, Standard Chartered, I&M, and Diamond Trust Bank, are the most exposed, accounting for 86.3% of the industry’s potential capital gap. Nineteen other lenders, including four mid-sized and nine small banks, would also be at risk under this scenario.
Defaults in the Banking Sector in Kenya
CBK data shows banks have funneled large sums into high-growth but volatile sectors. Real estate ranks high on the list, with defaults linked to weak demand, high construction costs, and stalled projects. Logistics has also struggled, hit by global supply chain disruptions and fuel price spikes. Multiple Hauliers defaulted on Sh7.2 billion owed to NCBA, while Convex Commercial Logistics failed to pay Sh2.07 billion owed to Stanbic.
Energy borrowers have faced challenges as delayed renewable projects and forex shortages disrupted debt repayments. Manufacturing, long a source of stress, continues to struggle with high import duties, power outages, and competition from cheaper imports.
An IMF report in January 2024 already flagged a surge in defaults, linking them to rising interest rates and a U.S. dollar shortage. The stress test by the Central Bank of Kenya (CBK) confirmed these sectoral imbalances as key drivers of instability.
High-Profile Defaults
Some of Kenya’s most visible corporate borrowers are entangled in disputes with banks. East African Cables defaulted on Sh2.2 billion in loans and, along with its parent TransCentury, faced legal battles with Equity Bank over debts totaling Sh4.74 billion. By May 2025, the Court of Appeal cleared Equity to auction four prime EAC properties, including factories in Nairobi.
TransCentury itself defaulted on Sh2.8 billion, leading Equity to place it under receivership in June 2025. Despite extensions from shareholder Kuramo Capital, the company was unable to restructure its debt, undermining a 2024 turnaround when it had posted Sh580 million in profit. The collapse jeopardized thousands of jobs and highlighted the risks lenders face when large clients default.
In June 2025, KCB Bank placed Diamond Industries under receivership, due to outstanding debt. Joy Vipinchandra Bhatt was appointed as the Receiver and Manager of the company, effective May 22, 2025. Diamond Industries Limited is known for its consumer goods under well-known brands such as Sunpride cooking oil, Raha cooking fat, Panga soap, and Fortune soaps.
Kenya’s Oldest Truck Body Builder, Labh Singh Harnam Singh Limited (LSHS), was also placed under administration to repay a Sh1.1 billion debt owed to KCB Group. The company’s inability to repay the loan led to its placement under administration by the High Court on February 4, 2025. Joint administrators, Ponangipalli Venkata Ramana Rao and Swaroop Rao Ponangipalli of Tact Consulting LLP, were appointed to manage its affairs and protect creditors’ interests under Kenya’s Insolvency Act of 2015.
CBK Rules and Regulatory Breaches
Kenyan banks’ appetite for large-ticket lending has frequently pushed them beyond regulatory limits. The CBK’s 25% single-borrower core capital limit is designed to cap exposure to individual borrowers, but enforcement reports show repeated breaches.
In 2024, 11 banks were fined for regulatory violations, with nine specifically cited for exceeding the single borrower limit. Despite CBK’s efforts, concentration risk remains entrenched among Tier I lenders.
Rising Non-Performing Loans
Alongside these corporate defaults, gross NPLs among Kenyan banks by April 2025 stood at Sh728.5 billion, or 17.6% of total loans, compared to 16.4% in December 2024. This was the highest NPL ratio in a decade in Kenya.
The surge has persisted for five straight quarters, with NPL growth outpacing overall loan expansion. For sectors like real estate and manufacturing, the CBK’s June 2025 Credit Officer Survey projected that NPL levels would remain elevated in the near term. Banks have reduced write-offs, down to Sh7 billion in 2024 from Sh33.3 billion in 2023, in favor of auctions and restructurings. However, this has not eased concerns about loan quality.
Capital Adequacy and Profitability
Despite these risks, banks reported Sh260 billion in profit in 2024. Yet this masks underlying weakness, as asset quality continues to decline. The CBK has introduced new rules requiring a minimum core capital floor of Sh3 billion by December 2025. Eleven banks currently fall short, requiring an additional Sh14.7 billion to comply. Without diversification, say, capping top-three exposure at 50% of capital, Tier I players risk insolvency cascades. Regulators urge ICAAP enforcement and cyber bolstering, but absent bolder provisioning, big-ticket pursuits could prove pyrrhic.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.