The Cross-Border Banking Exposures and Macroeconomic Spillover Effects: The Case of Kenya Working Paper, published on Friday, found that Kenyan banks held nearly 65% of banking-sector assets in Rwanda, 48% in the Democratic Republic of Congo (DRC) and 29% in Uganda.
KCB Group and Equity Bank Group led the regional expansion, while Co-operative Bank, NCBA, I&M, Diamond Trust Bank and Guaranty Trust Bank also maintained operations outside Kenya.
The DRC accounted for about 43% of Kenyan banks’ assets across other East African Community markets in 2024, up from 10% in 2018.
Rwanda, Tanzania and Uganda each accounted for approximately 15% of regional assets.
The Paper found that Kenyan banks expanded most strongly in countries where Kenya’s exports were growing and banking sectors recorded higher profitability and better asset quality.
A one-percentage-point increase in Kenya’s export growth to a destination market was associated with a 0.2-percentage-point increase in Kenyan banks’ overseas asset growth.
The authors said Kenyan banks’ regional lending was associated with higher economic growth and inflation in host countries during the same year, although the effects did not persist over subsequent years.
Across 32 African economies, a one-percentage-point increase in total private-sector bank credit was associated with a 1.1-percentage-point increase in real economic growth and a 0.2-percentage-point increase in inflation.
The Paper cautioned that the estimates represented conditional associations rather than proof that increased lending directly caused the economic changes.
Foreign banks also maintained a significant presence in Kenya, accounting for about 30% of banking-sector assets.
International banks held approximately $6.5 billion in cross-border claims on Kenya in 2024, with institutions from the UK, US, France, India and Italy among the largest sources.
The authors warned that the growing regional footprint increased the importance of coordinated banking supervision and crisis management.
The Central Bank of Kenya had signed cooperation agreements with regulators in several African countries, but joint inspections remained infrequent. Most bank-country relationships had recorded no joint inspection during the previous decade.
Accounting rules, capital requirements and deposit-insurance systems also differed across regional markets.
Burundi, the DRC and South Sudan lacked fully operational deposit-insurance arrangements, potentially complicating depositor protection and the sharing of losses during a cross-border banking crisis.
The Paper said Kenyan banks’ reliance on customer deposits raised confidence that regional operations were funded primarily within host markets.
However, non-performing loans at KCB and Equity Bank exceeded national banking-sector averages in Kenya, Rwanda and Uganda, creating pockets of risk alongside the banks’ substantial market shares.
–IMF/ChannelAfrica–
