Recent research published in PwC’s Financial Focus (May 2026) highlights a banking sector across East Africa that is becoming more resilient—but also more constrained.
Banks today are operating under rising capital requirements, elevated credit risk, and increasingly stringent regulatory expectations. These reforms are both necessary and welcome. They strengthen the foundations of the financial system and support long-term stability.
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.
A Stronger but Tighter System
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 profitability and capital buffers.
As highlighted in PwC’s research, these are not temporary conditions. They reflect a shift towards a more prudent, risk-aware banking system.
The result is a sector that is stronger—but also 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.
The Policy Tension
This dynamic 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 banking model—where banks originate and retain most credit risk on their balance sheets—struggles to deliver both objectives simultaneously.
Each new loan increases:
Risk-weighted assets
Expected credit loss provisions
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.
A Shift Towards Partnership Models
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.
Reframing Credit Risk as a Strategic Tool
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 for the transfer and sharing of credit risk. These include securitisation, structured risk transfer, and guarantee mechanisms.
The Case for Structured Credit Guarantees
In the East African context, one of the most practical and scalable tools is the use of structured credit guarantees.
By transferring a portion of credit risk to a specialised counterparty, guarantees allow banks to:
Reduce capital intensity
Lower provisioning requirements
Expand lending capacity without increasing risk exposure
Importantly, this does not alter the core role of banks. They continue to originate, manage, and service clients. What changes is how risk is allocated.
This distinction is critical. It enables banks to remain at the centre of financial intermediation while operating more efficiently within regulatory constraints.
Aligning Policy, Regulation and Market Development
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 that 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.
Conclusion: From Stability to Efficiency
East Africa’s banking reforms 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.
