Commercial banks advanced Sh228.2 billion new loans to businesses and households in 2025 as falling interest rates raised demand for credit in the economy.
Data from the Central Bank of Kenya (CBK) capturing absolute monthly credit flows show the lenders raised net disbursement to the private sector from a contraction of Sh53.6 billion in the year to December 2024.
September 2025 marked the highest monthly credit flow at Sh79.3 billion while January, February and August were outlier months as absolute credit flows marked a contraction.
The recovery in private sector lending has coincided with pressure from the CBK on lenders to cut interest rates with the apex bank slashing its own benchmark rate in 10 consecutive policy meetings to 8.75 percent in February 2026 from 13 percent in August 2024.
“Monthly credit flows to the private sector improved due to the easing of the monetary policy stance to lower the cost of funds for banks, sustained demand particularly for working capital due to resilient economic activities and the implementation of the credit guarantee scheme,” the National Treasury said in its quarterly Quarterly Economic and Budgetary Review Report.
Average commercial bank lending rates fell in the second half of 2025 and at the start of 2026 after peaking at 16.64 percent in January last year. The rate has fallen gradually to settle at 14.82 percent in December 2025 and January 2026.
Growth in commercial banks’ lending to the private sector measured in percentage terms has improved to 6.4 percent in January 2026 compared to a contraction of 2.9 percent a year earlier.
The expanded credit has flowed to key sectors of the economy including building and construction, trade and consumer durables. The recovery has partially aided the drop in commercial bank dud loans as the rate of loan delinquencies falls.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 15.5 percent in January 2026, an improvement from 16.7 percent in October 2025 and 17.6 percent in August 2025.
Decreases in NPLs have been mainly noted in real estate, manufacturing, trade, building and construction, and personal and household sectors.
A January 2026 markets perception survey by the CBK established moderate to high credit demand in the first quarter to March, signalling higher loan disbursements by banks to households and businesses.
“Bank respondents expect demand for credit to be largely driven by reduction in lending rates, which are anticipated to make borrowing more attractive and affordable for households and businesses by lowering the cost of servicing new and existing variable rate loans,” CBK said.
“In addition, respondents expect demand for credit to be supported by the resumption of operations and increase in demand for working capital and business restocking after the holidays.”
Private sector credit growth slumped in 2024 and in early 2025, hitting a trough of negative 2.9 percent as rising interest rates in the year resulted in the tightening of credit conditions including high interest rates and increased loan impairments.
Efficiency and transparency in setting the cost of loans is expected to be enhanced by the adoption of the revised risk-based credit pricing model which will in turn improve the transmission of monetary policy decisions.
The model which established a new benchmark for all loans around the Central Bank Rate (CBR) and the Kenya shilling overnight interbank average (Kesonia) is expected to follow CBK’s policy stance closely.
The total cost of credit is arrived at by adding a premium denoted as K, fees and charges to the chosen benchmark (Kesonia/CBR). The new model applies to all variable rate loans except for foreign currency denominated loans and fixed rate loans.
