Kenya’s banks ended the last quarter of 2025 with a noticeable decline in overdue loans, reflecting a pickup in business liquidity and improved repayment by borrowers.
Latest data shows that the value of non-performing loans fell by Sh46 billion between September and December, a development that signals easing financial pressure and renewed lending activity.
The Central Bank of Kenya reported that gross non-performing loans dropped to Sh674.3 billion from Sh720.4 billion in September, a 6.4 percent reduction over three months.
This trend followed a period of rising defaults caused by delayed government payments, high borrowing costs, and a challenging business environment.
Analysts say the improvement points to stronger debt recovery and better management of bank loan portfolios.
“The asset quality, measured by gross non-performing loans to gross loans ratio, improved from 16.9 percent in September 2025 to 15.4 percent in December 2025,” stated the Central Bank of Kenya (CBK). “This was due to a higher decrease in gross non-performing loans of 6.4 percent and an increase in gross loans of 2.6 percent,” it added.
Part of the recovery is linked to government payments of Sh123 billion in outstanding bills, enabling contractors—who had contributed significantly to the buildup of bad debts—to meet their bank obligations.
Bank officials said the recovery also reflects the improved financial position of businesses, partly supported by falling interest rates and better cash circulation.
“Agreeably, there is more money in the economy, so businesses have been submitting repayment plans, and as banks lend, there is a financial cycle that allows the borrowers to pay their suppliers, who are then able to meet their obligations,” said a debt recovery manager at a leading bank.
Structured repayment agreements have allowed banks to reclassify some loans from non-performing to performing. Additionally, lenders have continued efforts to recover funds by selling collateral assets, although the process has been slowed by an oversupply of properties and limited cash in circulation.
Credit to the private sector remained largely stagnant for much of the year, but borrowing increased after rate cuts and regulatory nudges to banks to ease lending. Private sector loans grew by 2.6 percent in the quarter to December, pushing total banking sector lending to Sh4.36 trillion.
“The increase in gross loans was largely witnessed in the trade, agriculture, and personal and household sectors,” said CBK.
The decline in non-performing loans also contributed to higher profits for banks, with pre-tax earnings rising 20 percent as less money had to be set aside for potential losses. The development marks a positive turnaround in Kenya’s lending environment, suggesting early signs of economic recovery and improved liquidity for businesses.
