Kenyan banks lose $125M FX income as shilling stabilizes, forcing a shift to lending-driven profits and raising new credit risks.
The End of the FX Supercycle
Kenya’s banking sector is undergoing a fundamental earnings reset after a two-year foreign exchange (FX) supercycle came to an end.
According to KCB Group, Equity Group Holdings, and Standard Chartered Bank Kenya filings, the shift is already visible in hard numbers.
For instance, shows that banks collectively lost Sh16.22 billion ($125.5 million) in FX income in 2025.
Overall, total FX earnings declined from:
- Sh70.97 billion ($549 million) in 2024
- To Sh54.75 billion ($424 million) in 2025
As a result, the sector recorded a 22.8% contraction, marking one of the sharpest reversals in non-interest income in recent years.
From Crisis Profits to Policy Normalisation
At the core of this shift lies the stabilisation of the Kenyan shilling, driven by the Central Bank of Kenya alongside improved dollar inflows.
Previously, in early 2024, the shilling weakened to nearly Sh160/USD. However, by 2025, it had stabilised within the Sh128–130/USD range.
Consequently, market conditions changed significantly:
- Dollar liquidity improved
- Volatility declined
- Pricing became more transparent
Therefore, FX trading margins narrowed sharply.
In effect, banks did not lose business activity—rather, they lost the abnormal margins created by market stress.
Treasury Desks Take the Hit
Unsurprisingly, banks with strong treasury operations recorded the steepest declines.
For example:
- Standard Chartered Bank Kenya
- FX income fell 58.6% to Sh3.42B ($26.5M)
- Stanbic Bank Kenya
- FX income declined 42.9% to Sh3.99B ($30.9M)
- KCB Group
- FX income dropped 35.2% to Sh11.36B ($87.9M)
- Co-operative Bank of Kenya
- FX income decreased 26.4% to Sh3.65B ($28.2M)
In contrast:
- Equity Group Holdings
- FX income increased 24.3% to Sh15.65B ($121.1M)
Notably, Equity’s regional footprint played a critical role in cushioning the decline.
Inside the FX Machine
To understand the shift, it is important to examine how FX income is generated.
Typically, banks earn from:
- Customer transaction spreads
- Trading gains
- Hedging services
During the 2023–2024 currency stress period, several factors amplified earnings. For instance, dollar shortages widened spreads, while corporates paid premiums to secure foreign currency.
As a result, FX income surged to Sh74.34B ($575M) in 2022.
However, once liquidity improved, the environment changed. In particular:
- Interbank trading became more efficient
- Regulatory oversight tightened
- Competition increased
Thus, margins compressed across the board.
Non-Funded Income Weakens
Beyond FX, a broader structural shift is now underway.
Specifically, non-funded income (NFI):
- Declined from 36.9% to 33.1% of total income
- Fell 3.3% in Q3 2025
As FX income weakened, banks increasingly relied on interest-based earnings.
Consequently, the sector is becoming more sensitive to credit risk and economic cycles.
Interest Income Takes the Lead
Despite the FX decline, profitability has remained resilient.
For example, indicates that KCB Group posted an 11% profit increase, driven by strong interest income.
Similarly, across the sector:
- Net interest income grew 13.4% in Q3 2025
Therefore, a clear transition is underway.
Banks are moving from volatility-driven profits to lending-driven earnings.
Valuation and Investor Implications
This shift carries important implications for investors.
First, the decline in FX income may improve earnings quality, since such income is typically volatile and difficult to forecast.
Second, increased reliance on lending introduces higher credit risk. Indeed, shows that business activity contracted in March 2026.
Finally, banks with diversified income streams—particularly regional players—are likely to command valuation premiums.
Policy Trade-Off: Stability vs Profitability
The Central Bank of Kenya has effectively engineered a deliberate trade-off.
On one hand:
- Currency stability has improved
- Import costs have declined
- Market confidence has strengthened
On the other hand:
- FX margins have narrowed
- Bank treasury profits have reduced
Nevertheless, this outcome reflects a policy success rather than a sectoral weakness.
Bottom Line
Ultimately, the decline in FX income represents a structural reset rather than a crisis.
- FX income fell Sh16.2B ($125M)
- Treasury-driven profits declined
- Lending income is now dominant
Going forward, the key question is not whether banks will remain profitable—but whether they can sustain growth in a more normalized, risk-sensitive environment.
Kenya’s banking sector is transitioning from opportunistic gains to fundamental-driven performance—and that shift will define the next phase of growth.