The banking sector outlook for 2022 is stable and resilient, underpinned by sufficient capital and liquidity buffers, the Central Bank of Kenya (CBK) said in its July 2022 financial stability report.

“Overall, a careful policy balancing between stemming inflation through tightening policy rates and maintaining accommodative monetary policy is needed for sustained economic recovery and financial stability,” it noted.

The Kenyan economy recovered from the COVID-19 pandemic in 2021, following the easing of restrictions that enabled the full reopening of economic activities. It is now projected to grow by 5.7% in 2022, the central bank said.

The economy rebounded from a contraction of 0.3% in 2020 to grow by 6.8% in 2021.

Besides the easing of COVID-19 containment measures, successful deployment of monetary, fiscal, and financial policies not only played a stabilising role but provided a conducive environment for economic recovery.

“Recovery remains on course, having weathered the Omicron variant in the fourth quarter of 2021, successful vaccination, and enhanced adherence to the COVID-19 protocols.”

However, the report warned a possible resurgence or emergence of COVID-19 virus mutation, slow credit uptake during the electioneering period and drought shock to Agriculture are some of the primary sources of domestic risks to growth.

The report stated that global sources of fragilities include the Russia-Ukraine war that has impacted energy and commodity prices and elevated global inflation, prompting faster-than-expected monetary policy tightening. 

(Editing by Brinda Darasha; brinda.darasha@lseg.com)