Commercial banks’ share of bad loans dropped to 13.9 per cent in September 2026, a 44-month low, according to data from the Central Bank of Kenya (CBK).

The ratio fell from 14.8 per cent in June 2026 and from 16.92 per cent in September 2025, marking the lowest level since January 2023.

CBK said the ratio stood at 13.9 per cent in September, down from 14.8 per cent in June and 17.6 per cent in August 2025, and that decreases were noted in the financial services, agriculture, trade and energy and water sectors.

CBK added that banks have continued to make adequate provisions for the non-performing loans.

CBK said the decline reflects improved loan repayments and greater credit affordability as the average commercial bank lending rate slipped to 14.4 per cent in September from a peak of 17.2 per cent in November last year.

The average lending rate also fell from 14.78 per cent in February 2026 to 14.4 per cent in September while the Central Bank Rate remained unchanged at 8.75 per cent.

Private sector credit grew by 10.6 per cent in September, the third consecutive month of double-digit expansion since July.

CBK revised its 2026 growth outlook to 5 per cent from 4.9 per cent after seeing a stronger industry and services sector.

The World Bank Group similarly upgraded Kenya’s GDP forecast to 4.6 per cent from 4.4 per cent.

CBK expects industrial sector growth to remain strong on construction, affordable housing, infrastructure projects and public-private partnerships, and digitisation to anchor services sector growth.

The central bank anticipates improved credit uptake across trade, building and construction, finance and insurance and consumer durables, while noting risks from prolonged geopolitical tensions, trade policy uncertainty and the El Nino weather phenomenon.

Banks have continued to cut borrowing costs after CBK’s rate pauses, creating a less restrictive environment for private-sector lending.

The Kenya Bankers Association said the developments should lower expectations of higher funding costs, allow lending rates to keep falling and reinforce credit growth, and that maintaining the current monetary stance remains appropriate.

Inflation is expected to stay below the 7.5 per cent upper limit, peaking at 7.2 per cent in December 2026 before easing, according to CBK Governor Kamau Thugge.

Thugge added that above-average rainfall in the fourth quarter should boost agricultural output and help keep inflation within target, supported by subsidies, a fuel VAT reduction and exchange-rate stability.

Monetary Policy Committee surveys in September showed inflation expectations remained anchored within the target range despite high energy prices.