Recent findings from PwC’s Financial Focus (May 2026) reveal that East Africa’s banking sector is growing more resilient yet faces tighter constraints due to higher capital requirements and stricter regulations.

While these reforms strengthen the financial system’s stability, they also limit banks’ ability to expand lending. Increased capital thresholds, elevated non-performing loans, and IFRS 9 provisioning mean banks must hold more capital against each loan, restricting credit growth despite economic demand.

Balancing Stability and Lending Growth

Policymakers and industry leaders are challenged to find solutions that maintain robust risk management without stifling lending, especially to SMEs, infrastructure projects, and climate initiatives. The traditional banking model, where institutions retain most credit risk, struggles to meet these dual goals.

Shift Towards Risk Sharing

Encouragingly, banks are adopting partnership approaches that share credit risk with third parties. This ecosystem model allows risk and capital to be distributed among specialized players, enhancing lending capacity without compromising stability.

Structured credit guarantees are highlighted as a practical tool in East Africa. By transferring part of the credit risk to specialized counterparties, banks can reduce capital intensity and provisioning burdens while continuing to serve clients effectively.

Regulatory and Institutional Alignment Needed

  • Regulators must clarify and support recognition of credit risk mitigation tools consistent with Basel standards.
  • Development of institutions such as credit guarantee agencies and development finance entities is essential to assume transferred risks.
  • Banks need to integrate risk transfer into capital management strategies, moving from risk retention to active risk optimization.

This evolution promises a financial system that is both strong and flexible, capable of sustaining credit growth alongside stability. The next phase of East African banking will be defined by how well risk-sharing mechanisms are embraced and scaled.