However, they also introduce a structural challenge that policymakers and industry leaders must now address: how to sustain credit growth in a more capital-intensive environment.
The direction of reform is clear. Regulators are raising minimum capital thresholds and enhancing supervisory oversight to align with global standards.
At the same time, banks are contending with higher non-performing loans and increased provisioning requirements under IFRS 9, both of which place pressure on profits and capital buffers.
As highlighted in the PwC research, these are not temporary conditions. They reflect a shift towards a more prudent, risk-aware banking system.
The result is an industry that is stronger – but more constrained in its ability to deploy capital. This has direct implications for lending.
Every additional loan now carries a higher capital and provisioning burden, making it more difficult for banks to grow their loan books without raising additional equity.
This creates a clear policy tension. On one hand, regulators are rightly focused on safeguarding stability through stronger capital and risk management frameworks.
On the other, governments are relying on banks to increase lending to support economic growth, particularly for SMEs, infrastructure and climate-related investments.
The challenge is that the traditional model – where banks originate and retain most credit risk on their balance sheets – struggles to deliver both objectives simultaneously.
Every new loan increases risk-weighted assets, expected credit loss provisions and pressure on capital adequacy ratios.
In a more demanding regulatory environment, this limits the capacity of banks to expand lending at the pace required by the economy.
Encouragingly, the PwC analysis points to a shift already underway. Banks are increasingly embracing partnership-based approaches, working with third-party institutions to support lending and manage risk.
This reflects a broader evolution in banking – from standalone balance sheet expansion towards more ecosystem-based models, where risk and capital can be shared across specialised participants.
The implication is significant. The future of banking will depend not only on how much risk institutions can take, but on how effectively they can structure and distribute that risk.
At the same time, the role of credit risk within banks is changing. With the adoption of IFRS 9, credit risk has moved beyond compliance to become a central input into pricing, portfolio management and capital allocation.
This shift, also highlighted in PwC’s research, creates an opportunity to rethink how risk is managed.
Rather than simply retaining risk, banks can increasingly treat it as a variable that can be optimised.
Global markets have already moved in this direction, developing instruments that allow the transfer and sharing of credit risk.
These include securitisation, structured risk transfer and guarantee mechanisms.
In the East African context, one of the most practical and scalable instruments is the use of structured credit guarantees.
By transferring a portion of credit risk to a specialised counter-party, guarantees allow banks to reduce capital intensity, lower provisioning requirement and expand lending capacity without increasing the risk exposure.
Importantly, this does not alter the core function of banks. They continue to originate, manage and service clients. What changes is how risk is allocated.
This distinction is important. It enables banks to remain at the centre of financial intermediation while operating more efficiently within regulatory constraints.
To fully realise the potential of risk-sharing mechanisms, alignment is required across the financial system.
First, regulatory frameworks should continue to provide clarity on the treatment of credit risk mitigation tools, ensuring they are recognised in a manner consistent with Basel principles.
Second, there is a need to support the development of institutions capable of assuming risk outside traditional banks.
These include credit guarantee companies, development finance institutions and institutional investors.
Third, banks themselves must integrate risk transfer into their strategic approach to capital management – shifting from a model of pure risk retention to one of active risk optimisation.
The banking reforms in East Africa are building a stronger financial system. The next step is to ensure that this system is also flexible and efficient.
By enabling banks to share and transfer risk through structured mechanisms such as guarantees, it is possible to reconcile two critical objectives – financial stability and sustainable credit growth.
Achieving this balance will define the next phase of banking in the region.