Commercial banks injected Sh228.2 billion in fresh loans to households and firms in 2025, marking a turnaround in private sector credit after a difficult 2024 when lending had shrunk.
New figures from the Central Bank of Kenya show that net credit flows to the private sector rebounded from a contraction of Sh53.6 billion recorded in the year to December 2024, as lower borrowing costs revived appetite for loans.
Monthly data indicate that September 2025 registered the strongest expansion, with Sh79.3 billion advanced during the month. However, January, February, and August stood out as periods when absolute credit flows dipped into negative territory.
The broader recovery in lending has unfolded against sustained pressure from the Central Bank of Kenya on commercial banks to lower lending rates. The regulator reduced its benchmark rate in 10 straight policy meetings, bringing it down to 8.75 percent in February 2026 from 13 percent in August 2024.
The National Treasury linked the improved credit uptake to this easier monetary policy stance.
“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 Economic and Budgetary Review Report.
Commercial lending rates eased in the second half of 2025 and into early 2026 after reaching 16.64 percent in January last year. They gradually declined to 14.82 percent by December 2025 and January 2026.
In percentage terms, private sector credit growth rose to 6.4 percent in January 2026, a clear shift from the negative 2.9 percent recorded in the same month a year earlier.
The renewed flow of loans has supported sectors such as building and construction, trade, and consumer durables. It has also coincided with an improvement in asset quality within the banking sector.
The ratio of gross non-performing loans to total loans fell to 15.5 percent in January 2026, compared to 16.7 percent in October 2025 and 17.6 percent in August 2025.
Reductions in bad loans were largely observed in real estate, manufacturing, trade, building and construction, as well as personal and household lending.
According to a January 2026 market perception survey conducted by the Central Bank of Kenya, lenders expect moderate to strong credit demand in the first quarter ending March, pointing to continued loan growth to businesses and families.
“Bank respondents expect demand for credit to be largely driven by a 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 an increase in demand for working capital and business restocking after the holidays.”
Private sector lending had weakened through 2024 and into early 2025, reaching a low of negative 2.9 percent as higher interest rates tightened credit conditions and raised loan impairments.
The adoption of the revised risk-based credit pricing model is expected to improve how banks set lending rates, enhance clarity in pricing, and strengthen the link between monetary policy decisions and borrowing costs.
