Absa Bank Kenya has reported its first quarterly decline in profit after tax since 2017, with lower interest rates weighing on both lending and non-lending income streams and highlighting the challenges of sustaining earnings in a reduced-rate environment.
The lender recorded a profit after tax of KSh 5.31 billion for the quarter ended March 31, 2026, representing a 13.9% drop from KSh 6.17 billion posted during the same period last year.
Despite the setback, the bank’s long-term growth trajectory remains strong. Over the past two decades, total assets have expanded from KSh 109.4 billion in the first quarter of 2006 to KSh 571.3 billion in Q1 2026, reflecting an average annual growth rate of about 8%. Profit after tax also climbed steadily from KSh 820 million in 2006 to a record KSh 6.17 billion in Q1 2025 before the latest decline.
Operating revenue fell by 7.1% to KSh 14.65 billion, marking a second consecutive annual drop and the first back-to-back decline in at least 20 years. Net interest income decreased by 7.9% to KSh 10.37 billion, while non-interest income slipped 5.2% to KSh 4.28 billion.
Income from loans experienced the steepest decline, falling 13.2% to KSh 9.97 billion as the Central Bank of Kenya’s rate cuts reduced returns on variable-rate lending. Foreign exchange trading income also declined by 17.9% to KSh 1.26 billion, following exceptionally strong performance during the shilling depreciation period of 2023 and 2024.
A notable area of growth came from subsidiary income, which increased by 25% year-on-year, signalling progress in the bank’s efforts to diversify revenue sources beyond its core domestic operations.
Although interest expenses dropped by 17.2% to KSh 3.15 billion due to lower funding costs, the reduction was not enough to counter the impact of shrinking lending margins, suggesting that falling rates are reducing loan income faster than funding costs.
Operating expenses added to the pressure, rising 2.4% to KSh 7.16 billion. Staff costs recorded a particularly sharp increase of 33.7%, climbing to KSh 3.89 billion from KSh 2.91 billion a year earlier. The increase of KSh 980 million was not explained in the board’s statement. Consequently, the bank’s cost-to-income ratio worsened to 48.9%, its highest level since 2020.
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On a more positive note, the balance sheet remained robust. Total assets grew 6.3% to KSh 571.3 billion, customer deposits increased 7.2% to KSh 399.1 billion, and gross non-performing loans fell 13.5% to KSh 38.11 billion, marking the first significant improvement in asset quality in four years. Holdings in government securities rose 21.3% to KSh 128.46 billion as the lender shifted more capital into sovereign investments.
According to Consumer Banking Director Moses Muthui, the retail segment is showing signs of recovery.
“First Quarter 2026 Banking results tell us that the recovery cycle is underway, for both the industry and the economy. Absa Retail recorded a 10% growth in income driven by a 17% growth in customer transacting activity,” he said.
The current downturn represents only the second revenue contraction in two decades of quarterly reporting, the first having occurred in 2009. Whether the latest results signal a temporary low point or the beginning of a prolonged earnings squeeze will largely depend on the direction of future CBK rate cuts and management’s response to the sharp rise in staff costs.
