Absa Bank Kenya has signalled a pivot towards private sector lending from investments in government securities as its South African parent pushes the local unit to diversify its revenue base.
The tier-one lender sees an opportunity to increase lending to businesses and households as returns on government securities decline.
The bank also expects fresh digital investments to generate additional non-interest-funded income to help shore up revenues after earnings fell in the first quarter of 2026.
Absa says parking money in government securities, especially short-dated Treasury bills, left it exposed as interest rates fell faster than expected.
“I’d say it’s a unique situation where you have Treasury bills at 16 percent and, within about three or four months, that comes down to eight per cent. That happened to us from January, and you can imagine the impact if one’s entire portfolio is linked to Treasury bills,” said Yusuf Omari, Absa Bank Kenya’s interim chief executive officer.
“If you think about the banking industry, when we started 2026, private sector lending was in single digits. Today, as we speak, it’s almost 10 percent. For us, I don’t think our lending will grow so much from increasing our margins but rather from growing volumes.”
South Africa-headquartered Absa Group recently told investors that its Kenyan and Ghanaian units had demonstrated the need for the lender to diversify its revenue sources in markets outside its home country.
Group CEO Kenny Fihla said the group had felt the impact of lower interest income in Kenya and Ghana, where the respective central banks have aggressively cut interest rates over the past two years to stimulate private sector lending and spur economic growth.
The comments came as the group offered Sh30.9 billion to raise its ownership stake in the Kenyan unit to 85 percent from the current 68.5 percent.
Absa Bank Kenya reported a 13.8 percent decline in net profit to Sh5.3 billion in the quarter ended March, as falling interest rates and reduced lending to customers weighed on interest income.
The bank reduced its loan book by Sh4.5 billion to Sh303.8 billion, even as it increased investments in safer government debt securities.
For instance, Absa’s portfolio of government securities held to maturity rose more than tenfold during the quarter, from Sh1 billion to Sh11.1 billion, while government securities held for sale increased from Sh104.8 billion to Sh117.3 billion.
Non-interest-funded income (NFI) also declined by Sh233.9 million to Sh4.2 billion during the three months.
Management says the bank is investing in a new standalone digital platform to strengthen non-interest income by expanding its savings, investment and insurance offerings, building on gains made through its Timiza digital lending platform.
Absa Bank Kenya has been diversifying its business in recent years, adding new units including custody, asset management and bancassurance.
“Before the end of this year, we’ll come to the market in a big way to launch a digital-only platform. We have Timiza now, but that’s mostly on the lending side. What we are bringing is an entire, fully fledged bank that offers savings, lending, investing and insurance,” Mr Omari added.