A banking crisis in Kenya last year, the repercussions of which are still being felt throughout the country, means that despite economic growth of 4% and projections for even higher growth this year, Kenya is a risky investment destination for South African banks.
Last year Kenya's banking sector, which comprises more than 43 banks, was shaken by a crisis sparked by the collapse of three small banks: Dubai Bank Kenya, Imperial Bank and Chase Bank Kenya.
The crisis was triggered by high interest rates that became unsustainable for borrowers.
In an bid to stabilise the sector, in June last year the government introduced caps on interest rates, stipulating that banks could not charge more than 14% on loans.
Graham Thompson, Africa knowledge leader at EY, said the caps had adversely affected lending.
"The intention of the caps was to make lending and borrowing more affordable, but it actually just closed the taps."
Credit growth has slowed from 18% a year ago to around 4%, reducing margins for South African banks like Barclays Africa and Standard Bank.
The Central Bank of Kenya introduced a 7% interest rate floor on deposits, intended to attract depositors into the market. However, as more banks became reluctant to extend credit, depositors - specifically big institutional investors - chose government bonds, which they regarded as a safe haven.
As in most banking crises, the deluge of withdrawals as panic mounted among consumers filtered through to institutional customers.
Standard Bank - through its exposure to Liberty - felt the full effect of the crisis. This was primarily because of poor investment decisions by Stanlib portfolio managers who acted outside of the company's mandate by investing in second-tier banks.
"A lack of capital is like a cancer, but a lack of liquidity is like a heart attack. The problem in Kenya was caused [more] by liquidity than capital," said Ben Kruger, joint CEO of Standard Bank. "In many cases banks get into trouble and people lose trust. When people lose trust they withdraw their deposits - and then you have a liquidity shortfall."
Kruger said government intervention - through the introduction of interest caps on credit and floors on lending rates for deposits - could kill banks overnight if not managed correctly.
The central bank's challenge would be finding a way to deal with that unintended consequence so that the measures it introduced did not negatively affect banks.
The regulator would have to pave the way in a manner suitable to recovery in the region.
"You have to be a smart regulator. If you have a situation like that develop it can spiral out of control very quickly," said Kruger.
Another element that adds to regulatory uncertainty in Kenya is the upcoming presidential election, which Standard Bank and Barclays Africa expect will affect revenues there.
Thompson said: "The complication in Kenya is that there's an upcoming election and it depends on the government to decide whether at this point it can afford to relook its policy [on lending and deposit rates] and make the necessary change.
"It's related to the political environment and very difficult to say what's going to unfold."