Rates still high for borrowers as banks rake in huge profits

Kenya’s banking sector is riding on a wave of historic profitability for the financial year ended December 31, 2025, powered by strong loan growth, improved liquidity, and a supportive monetary policy environment.

Tier-one lenders led the charge, reflecting both improved operating conditions and strategic adaptability in a shifting interest rate environment.

Equity Group Holdings posted a record Sh75.5 billion profit, marking a 55 per cent jump year-on-year, while KCB Group followed closely with Sh68.35 billion, supported by strong interest income and contributions from its regional subsidiaries.

Co-operative Bank of Kenya reported Sh29.75 billion in earnings, up 16.9 per cent, as NCBA Group posted Sh23.4 billion, a seven per cent increase.

Others like Absa Bank Kenya delivered Sh22.9 billion in profit, while Stanbic Holdings remained stable at Sh13.7 billion. Standard Chartered Bank Kenya reported Sh12.4 billion, reflecting a more cautious stance.

The strong earnings growth was largely driven by improved net interest margins, digital banking expansion, and disciplined cost management, placing Kenyan banks among the better-performing lenders globally in terms of returns.

Robust profitability translated into record shareholder returns, with banks distributing a combined Sh111.3 billion in dividends, up 30.3 per cent from the previous year.

KCB led with Sh22.49 billion in payouts, followed closely by Equity at Sh21.7 billion. Co-operative Bank issued Sh14.67 billion, while NCBA and Absa have raised Sh11.7 billion and Sh11.13 billion, respectively.

Stanbic modestly increased its dividend to Sh22, while Standard Chartered trimmed payouts in line with softer earnings.

Yet, for many borrowers, the cost of credit remains stubbornly high, exposing a disconnect between policy easing and real-world lending rates.

For small-scale traders like Julliet Waithera, who runs a cosmetics business in downtown Nairobi, the benefits of falling interest rates remain largely theoretical.

After securing a Sh500, 000 loan to rebuild her business following anti-government protests last year, she says she is still paying 19 per cent interest.

“I expected the rates to come down more significantly, especially after all the announcements by the regulator,” she says, echoing concerns shared by many small and medium-sized enterprises.

Her experience comes despite aggressive monetary easing by the Central Bank of Kenya (CBK), which has cut its benchmark Central Bank Rate (CBR) 10 consecutive times over the past two years.

The latest Monetary Policy Committee (MPC) meeting cut the base-lending rate to 9.75 per cent, down from double-digit levels in 2023.

Easing inflationary pressures, relative exchange rate stability, and the need to stimulate private sector credit growth following a period of tight financial conditions have driven the CBK’s rate-cutting cycle.

Additional reforms, including the introduction of the Kenya Electronic System for National Interbank Operations (KENSONIA), have also improved liquidity distribution across banks, lowering interbank borrowing costs.

However, the transmission of these policy changes to commercial lending rates has been gradual.

According to CBK’ s latest banking supervision report, the average commercial lending rate has only edged down to about 17.4 per cent from 18.3 per cent a year earlier, highlighting the lag in passing on the benefits to consumers.

In January, average commercial banks’ lending rates stood at 14.8 per cent, down from 15 per cent per cent in October 2025 and 17.2 per cent in November 2024.

Sam Gichana, a taxi driver, offers a similar perspective. He recently secured a Sh700, 000 loan to purchase a second vehicle, with plans to expand his business in Kitale.

“Accessing the loan was easy, but the price is still high,” he says. “I was paying 19 per cent on a loan I took in 2022. Now I’m paying 17.8 per cent. That’s a drop in the ocean.”

Despite maintaining a strong credit score, Gichana notes that the reduction is marginal and does little to ease his repayment burden.

Yet, not all borrowers share the same experience.

Edward Karima, a bookshop owner along Duruma Road in Nairobi, says he has seen some improvement.

“I recently borrowed from Co-operative Bank of Kenya at a rate about three percentage points lower than what I was charged in 2024. I appreciate the small strides being taken,” he says.

The CBK has acknowledged the slow pace of rate transmission, with Governor Kamau Thugge urging lenders to accelerate the pass-through of lower benchmark rates to borrowers.

Banks, however, have cited elevated credit risk, cost of funds, and legacy loan pricing as factors limiting faster adjustments.

A top bank executive told the Star in a recent interview that while lenders are happy supporting financial inclusivity and economic growth, they are forced to set aside huge amounts to guard them against defaults, which are still high.

“Look keenly at 2025 results. Don’t be blinded by high profitability. While it is a sign of resiliency, non-performing loans are still high. Pay attention to loan provisions, things are still not good,’’ the executive said.

He requested to remain anonymous for fear of reprisal, saying that the lending rate debate is quite a sensitive topic.

Banks disbursed historic loans during the financial year under review, despite a marginal decline in the default rate.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 15.5 per cent in January 2026, down from 16.7 per cent in October 2025 and 17.6 per cent in August 2025.

Decreases in NPLs were noted in the real estate, manufacturing, trade, building and construction, and personal and household sectors.

A high default rate was witnessed in the agriculture, tourism, and MSMEs. 

KCB remained Kenya’s largest lender, with its Sh1.25 trillion loan book cementing its dominance in corporate and public sector financing.

The bank’s lending strategy focused on key economic sectors such as manufacturing, agriculture, real estate, and infrastructure.

Equity Group holding MD, James Mwangi, said that the bank’s loan book of Sh882.5 billion reflects its strong presence across East and Central Africa, with more than half of its earnings now coming from regional subsidiaries.

Its lending model is anchored on SME financing, digital credit, and retail loans.

The Co-op Bank’s Sh421 billion loan book, on the other hand, highlights its deep penetration among SMEs, SACCOs, and retail borrowers.

Its relationship-banking model, particularly through cooperative societies, ensured steady credit uptake.

NCBA Group, known for digital lending and corporate financing, disbursed a loan portfolio of Sh317.2 billion, driven by a mix of corporate lending and its widely used digital credit platforms, such as mobile-based loans.

The easing cycle has begun to stimulate credit growth.

Private sector credit expanded by approximately 13.2 per cent year-on-year in the latest MPC data, a notable recovery from the subdued levels recorded in 2023.

“This growth reflects increased lending to sectors such as trade, manufacturing, real estate, and personal consumption,’’ the monthly Purchasing Managers’ Index (PMI) for March states.

At the same time, banks continue to play a pivotal role in financing public sector projects.

Through syndicated loans and infrastructure bonds, institutions such as KCB Group, Absa Bank Kenya, Stanbic Bank Kenya, and Standard Chartered Kenya have supported large-scale infrastructure developments, including sustainability-linked financing initiatives.

This dual role, supporting both private enterprise and public investment, reinforces the sector’s position as a critical intermediary in Kenya’s economy.

The broader economic impact is increasingly evident. The Financial Wellness Monitor by Old Mutual Group, released a fortnight ago, shows that seven in 10 working Kenyans expect their financial situation to improve within the next six months.

At least 58 per cent of Kenyans say they have the financial freedom to enjoy life and pursue their passions without excessive financial pressure.

Furthermore, improved access to credit is enabling business expansion, supporting job creation and boosting consumer spending.

Although the latest Purchasing Managers’ Index (PMI) by Stanbic Bank shows the headline reading fell to 50.4 in February from 51.9 in January, marking the third consecutive monthly decline, other variables are positive.

“The PMI stayed in expansion territory, albeit slower this month, implying still strong demand conditions are driving new orders, in turn lifting output in the private sector at the end of the year,” said Standard Bank economist Christopher Legilisho.

The index shows that companies across most sectors reported higher activity levels, with growth supported by improved tourism, increased advertising, better cash flow, and the ability to pass on subdued cost pressures through more competitive pricing.

Rising demand also translated into strong sales growth, marking the fourth consecutive month of expansion in new orders.

Firms attributed the increase to improved travel activity, affordable pricing strategies, and enhanced marketing efforts, reinforcing optimism about near-term business prospects.

Yet, borrowers like Waithera and Gichana are reminding policymakers that the full benefits of monetary easing will only be realised when lower benchmark rates translate more decisively into affordable credit on the ground.