Kenya's banking sector has delivered a broadly strong set of first-half 2026 results. Profitability has improved across many of the country's major lenders, loan books are expanding, asset quality is improving and the broader credit environment is becoming more supportive. For the real estate sector, however, the most important story is not necessarily the profits being reported by banks. It is the increasing capacity and willingness of banks to extend credit.

Our view is that the H1 2026 banking results could represent an early indicator of a gradual improvement in the financing environment for Kenya's property market. The transmission will not be immediate, and it will not benefit every segment equally. But the direction is worth watching.

The numbers behind the Story

The H1 results show significant improvement across several major lenders. Equity Group reported a 32% increase in profit after tax to KShs 45.5B, while group net loans grew by 19%. Its Kenyan banking business also recorded 8% loan growth, with quarterly loan growth accelerating to 11%.

KCB Group reported KShs 49.3B in profit before tax, up 20.8%, while net loans increased by approximately 13%. Co-operative Bank recorded KShs 18B in profit after tax, representing 28% growth, with its loan book increasing strongly. I&M Group reported KShs 10.2B in profit after tax, up 22%, while net loans and advances increased 15% to KShs 334B.

NCBA recorded KShs 12.4B in profit after tax, up 12.2%, while its retail loan book grew 54%. Importantly for our sector, the bank specifically highlighted its EasyBuild property-finance offering as part of its retail strategy. These numbers demonstrate that the banking sector is not merely reporting higher profits. Credit is beginning to expand again.

The credit cycle is turning

This is perhaps the most important development for real estate. According to CBK data, private-sector credit growth reached 10.6% in June 2026, with strong credit demand particularly evident in building and construction, trade, agriculture and consumer durables. This is a significant improvement from the contraction experienced in early 2025.

Commercial bank lending rates have also declined as monetary conditions have eased. CBK's Central Bank Rate currently stands at 8.75%, while average commercial-bank lending rates have continued moving down from their much higher levels in late 2024. For real estate, this matters because financing costs influence almost every stage of the property cycle.

1. Developers could be the first major beneficiaries

The immediate opportunity may not be mortgages. It may be construction finance. A developer borrowing hundreds of millions of shillings is highly sensitive to the cost of debt. When financing becomes cheaper and banks become more willing to lend, projects that previously appeared marginal can become viable again. This could support:

• Residential developments;
• Commercial buildings;
• Industrial facilities;
• Warehouses;
• Mixed-use developments;
• Hospitality projects; and
• Infrastructure-related property.

2. Stalled projects could return

Kenya has a significant pipeline of developments that have been delayed by financing constraints, weak demand or high construction costs. Improved credit conditions could allow some developers to revisit these projects. However, we do not expect every stalled development to restart. Banks are likely to remain selective. Projects with: Strong locations + realistic pricing + demonstrable demand + credible developers are more likely to secure financing than speculative projects. This could actually improve the quality of new supply entering the market.

3. Residential demand could eventually strengthen

The next transmission mechanism is the buyer. Lower borrowing costs can improve mortgage affordability. But the relationship is not automatic. Kenya's mortgage market remains constrained by household incomes, formal employment, deposits, property prices and consumer confidence. Therefore, lower rates should be viewed as an important enabler, rather than a guarantee of increased homeownership. Nevertheless, if the current easing cycle persists, residential demand could gradually benefit.

4. Improving bank asset quality matters

There is another banking-sector development that deserves attention. The market-weighted NPL ratio among listed banks reporting H1 2026 results declined to 11.3% from 13.8% in H1 2025. At the same time, NPL coverage increased from 67.8% to 73.4%. This is important because banks become more comfortable expanding lending when their existing loan portfolios are becoming healthier. KCB's NPL ratio fell from 17.9% to 14.5%, while Equity's declined by five percentage points to 10.2% on the Cytonn market-weighted comparison. Co-operative and Absa also recorded significant improvements. The implication is not that credit risk has disappeared. Far from it. But the direction is encouraging.

5. Real Estate lending will remain selective

We should not confuse improved banking performance with unrestricted lending. Earlier in 2026, CBK's credit-officer survey showed banks were still paying close attention to credit recovery in real estate and building and construction. That tells us something important: Banks are becoming more willing to lend, but they are not abandoning underwriting discipline. This is likely to favour developers with:

• Strong balance sheets;
• Good track records;
• Clear project economics;
• Appropriate collateral;
• Realistic sales assumptions; and
• Demonstrable market demand.

6. Industrial and Logistics property could benefit

The relationship between credit and real estate goes beyond housing. As businesses gain greater access to financing, they can expand operations. That can translate into demand for:

• Warehouses;
• Distribution centres;
• Manufacturing facilities;
• Offices;
• Retail premises; and
• logistics infrastructure.

This is particularly relevant as Kenya's industrial and logistics sectors increasingly expand beyond traditional Nairobi locations. Infrastructure corridors such as the Rironi–Mau Summit corridor could further reinforce this trend.

7. Commercial Property could see a gradual recovery

Commercial real estate has faced considerable pressure from changing work patterns, excess office supply in some locations and weak economic activity. Improved credit conditions alone will not solve these challenges. However, stronger business activity and increased SME lending can eventually create incremental demand for commercial premises. The key word is selectivity. Prime, well-located and well-managed commercial assets may benefit considerably more than secondary properties with structural vacancy problems.

8. The Banking–Property relationship works both ways

There is another side to this story. A healthier property market also improves banks' balance sheets. Developers sell completed units. Borrowers repay construction loans. Landlords generate rental income. Mortgages perform better. Property collateral becomes more valuable. The relationship is therefore circular: Better credit → more development → stronger property activity → better loan performance → greater banking confidence → more credit. This is the positive credit-property cycle we would like to see develop.

Why we should remain cautious

There are still considerable challenges. Interest rates may not fall indefinitely. Household purchasing power remains constrained. Construction costs remain significant. Some property segments still face oversupply. And banks continue to carry substantial non-performing loans. Therefore, we do not believe the H1 banking results justify declaring a new property boom. They indicate something more subtle: the financial conditions necessary for a healthier property cycle are gradually improving.

What we expect

Our expectation is that the impact will occur in stages.

Short term

Improving credit conditions → increased construction financing → selective restart of projects → increased construction activity.

Medium term

Higher project completions → increased transactions → stronger rental and commercial activity in selected locations.

Longer term

Improved mortgage affordability → broader housing demand → stronger development activity where supply matches genuine demand. The timing will depend heavily on interest rates, household incomes and economic growth.

Our View

At Stable Merchants, we believe the H1 2026 banking results provide an important signal for Kenya's real estate sector. The story is not simply that banks are profitable. The more important story is that banks are beginning to lend more, credit demand is recovering, lending costs are easing and asset quality is improving. For a sector as dependent on finance as real estate, those developments matter. We expect the first beneficiaries to be credible developers and businesses capable of demonstrating genuine demand and sustainable project economics.

Residential developers could benefit as financing conditions improve, while industrial, logistics and selected commercial property could gain from increased business investment. For homebuyers, lower lending costs could gradually improve affordability, although the mortgage market will remain constrained by incomes and property prices. Ultimately, however, we believe the greatest opportunity lies in what happens next. If banks continue moving from balance-sheet protection towards productive private-sector lending, real estate could become one of the important channels through which that credit enters the wider economy.

Our view is therefore not that Kenya is entering another property boom. It is that the financial foundations for a healthier property cycle are beginning to re-emerge. And perhaps the most important question for the property industry is no longer: "Are banks making money?" It is: "Where are the banks putting the money?" Because that is where tomorrow's economic activity and potentially tomorrow's real estate demand will begin.

Stable Merchants Limited
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