South Africa’s Absa Group is accelerating efforts to diversify the revenue streams of its Kenyan subsidiary as declining interest rates continue to weigh on earnings from traditional lending activities.
The banking group says its operations in Kenya and Ghana have highlighted the need to generate more income from non-lending businesses, reducing reliance on interest income in a changing monetary policy environment.
Absa Bank Kenya remains heavily dependent on lending, with net interest income accounting for 70.8 percent of its Sh14.65 billion operating income during the first quarter of 2026. The lender generated Sh10.37 billion from interest income, placing it among Kenya’s banks with the highest reliance on lending revenue. Only DTB, I&M Group and Stanbic Bank recorded higher proportions of interest income relative to total operating income.
Speaking to investors, Absa Group Chief Executive Officer Kenny Fihla said the performance of the Kenyan and Ghanaian businesses demonstrates why the group must accelerate growth in fee-based and transaction-driven income.
According to the lender, lower benchmark interest rates in both markets have reduced returns from loans and government securities, creating pressure on profitability. Over the past two years, the Central Bank of Kenya has steadily lowered its policy rate to support private sector lending and stimulate economic growth, resulting in declining yields across the fixed-income market.
The yield on the 91-day Treasury Bill has fallen from approximately 16.7 percent two years ago to about 8.2 percent, while Treasury bond yields have eased from highs of around 18 percent to between 12 and 14 percent.
During the first quarter, Absa Bank Kenya reported a 13.8 percent decline in net profit to Sh5.3 billion. Net interest income fell 7.9 percent to Sh10.37 billion, while non-funded income also declined by five percent to Sh4.28 billion.
The lender also reduced its loan portfolio by Sh4.5 billion to Sh303.8 billion while increasing investments in government securities by Sh30.5 billion to Sh174.5 billion, reflecting a more cautious lending strategy amid changing market conditions.
Beyond improving revenue diversification, Absa Group is reinforcing its long-term commitment to Kenya through an ongoing offer to increase its ownership in Absa Bank Kenya from 68.5 percent to 85 percent. The Sh30.9 billion transaction, currently underway at the Nairobi Securities Exchange, underscores the group’s confidence in Kenya’s banking sector despite near-term earnings pressures.
As interest rates continue to normalize, Kenyan banks are expected to place greater emphasis on digital banking, transaction fees, wealth management, payments and other non-interest income sources to sustain profitability and reduce exposure to fluctuations in lending margins.
