Equity, KCB and Co-op top bank stock picks as sector profit rises 17.2%

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Equity Group, KCB Group and Co-operative Bank are the most attractive banking stocks on the Nairobi Securities Exchange (NSE), according to a new sector valuation report by Standard Investment Bank (SIB), which found that listed lenders grew attributable net earnings by 17.2 per cent in the first half of 2026.

The report, based on results for the six months to June and share prices as of October 9, says the three lenders combine above-average returns on equity with valuations at or below the average for the banks it covers.

Cheaper deposits and fees lift profits

The covered banks posted combined profit after tax of KSh153.5bn, including non-controlling interests, while pre-tax profit from core banking operations across the wider sector rose 16.4 per cent to KSh172.4bn.

Net interest income rose 11.4 per cent as interest income grew 5.9 per cent while interest expenses fell 5.4 per cent, a sign that lenders are paying less for deposits as rates ease. Non-funded income climbed 17.2 per cent to KSh159.1bn, helped by a 17.3 per cent jump in fees and commissions to KSh103.3bn and a 12.2 per cent recovery in foreign exchange trading income.

Average return on average equity for the covered banks stood at 21.3 per cent, with an average price-to-book ratio of about 1.3 times.

Equity and KCB rated buy, Co-op a hold

Equity Group reported the largest attributable earnings at KSh43.8bn, up 31.5 per cent, as profit after tax from its Kenyan and regional units rose 27 per cent. Its insurance arm grew gross written premiums 24 per cent to KSh6.4bn. SIB puts Equity’s fair value at KSh122.26 a share against a market price of KSh104 and rates it a buy.

KCB’s attributable earnings rose 14.5 per cent on lower interest costs and a growing loan book, and its gross non-performing loan ratio stood at 15.1 per cent. The board has proposed an interim dividend of KSh3 a share, up from KSh2 last year. SIB values KCB at KSh113.08 against KSh89.75 on the market, also a buy.

Co-operative Bank grew earnings 28 per cent, raised its loan-loss coverage to 80.7 per cent from 69.9 per cent and cut its cost of risk to 1.8 per cent. With a fair value of KSh37.22 against a price of KSh36.95, SIB rates it a hold. The lender is targeting KSh1trn in assets and plans to restructure into a holding company.

Family Bank fastest, StanChart and Absa slip

Family Bank posted the fastest growth, with profit after tax up about 61.8 per cent as net interest income rose 40.7 per cent to KSh9.8bn. Diamond Trust Bank grew earnings 34.1 per cent, I&M Group 20.3 per cent and NCBA 12.2 per cent. NCBA has proposed a KSh3.75 interim dividend but is rated a hold, with a fair value of KSh98.74 against KSh88.75.

Standard Chartered Bank Kenya and Absa Bank Kenya were the weak spots, with earnings down 16.8 per cent and 9.8 per cent as yields on loans and government securities fell. Stanbic’s earnings rose 1 per cent to about KSh6.6bn. StanChart still offers the highest dividend yield in the group, at about 9.7 per cent, followed by Stanbic at 8.1 per cent, NCBA at 8 per cent and KCB at 7.8 per cent.

Election and capital rules are the risks

SIB warns that heavy government borrowing could crowd out private lending and flags geopolitical tensions, higher input costs and uncertainty ahead of the 2027 General Election. Private-sector credit growth improved to about 10.6 per cent in June from 2.2 per cent a year earlier, and the industry’s bad loan ratio eased to 14.8 per cent from 17.6 per cent.

A draft Central Bank of Kenya framework for domestic systemically important banks could also require the largest lenders to hold an extra 0.5 to 2.5 per cent of risk-weighted assets in core capital.

The report comes as foreign investors have been net sellers on the bourse, with the NSE shedding KSh40bn in a week earlier this month. SIB has also been courting institutional money, recently getting NSE ISINs for its MansaX funds. Borrowers comparing lenders can check repayments on our bank loan calculators, and readers following lender news can see how Family Bank signed a $10m AfDB trade finance line for small businesses.