Kenyan Banks Boost Government Securities Holdings as Private Lending Slows

Kenyan banks increased holdings of government securities to KSh2.5 trillion by December 2025, up 18.2 per cent from KSh2.1 trillion a year earlier, while loans and advances to customers rose 6.6 per cent to KSh3.9 trillion.

The banks’ liquidity ratio improved from 55.8 per cent to 59.3 per cent, a rise of 6.3 per cent, reflecting faster growth in total liquid assets than short-term liabilities; “Total liquid assets grew by 16.5 per cent while the short-term liabilities increased by 9.6 per cent. The banking sector’s average liquidity in 2025 was way above the statutory minimum requirement of 20 per cent,” the report says.

Customer deposits grew 11.6 per cent to KSh6.1 trillion, but banks continued to favour government securities, which now account for 29.9 per cent of total net assets, compared with 46.5 per cent for loans and advances and 8.6 per cent for other assets.

The sector’s net asset base rose to KSh8.3 trillion, an increase of KSh781.8 billion or 10.3 per cent, “This is attributable to increase in government securities by KSh384.5 billion (18.2 per cent), loans and advances by KSh240.5 billion (6.6 per cent), balances at Central Bank by KSh188.9 billion (61.0 per cent) and cash by KSh3.7 billion (3.8 per cent),” the report says.

Total interest income for banks was KSh818.4 billion, with 60.6 per cent coming from loans and advances and 34.8 per cent from government securities; interest income from loans fell 7.6 per cent to KSh495.6 billion, while income from securities grew 9.1 per cent to KSh284.4 billion.

Overall banking sector income declined 2 per cent to KSh1,032.9 billion in December 2025 from KSh1,054.4 billion a year earlier, “The decrease in income was largely attributed to a decrease in interest on advances (KSh40.6 billion), interest on placements (KSh3.3 billion) and other fees and commission income (KSh1.9 billion) between December 2024 and December 2025,” the report says.

Interest rates fell from 10.75 per cent in February 2025 to 9.0 per cent at year-end, with the current Central Bank Rate at 8.75 per cent, while the government’s domestic borrowing to fund its budget continues to provide banks with a ready market for securities.