Kenyan banks build a Sh2.5 trillion government debt portfolio as lending trails

Kenyan banks collected more deposits and strengthened their cash buffers in 2025, but their holdings of government debt grew much faster than lending to customers. By December, banks held Sh2.5 trillion in government securities—debt issued by the state—against Sh2.1 trillion a year earlier. That was an 18.2% increase, compared with 6.6% growth in customer loans, according to The Standard Kenya Business (direct), citing the Central Bank of Kenya’s Bank Supervision Annual Report 2025.

Loans and advances to customers reached Sh3.9 trillion, compared with Sh3.6 trillion a year earlier. They remained the biggest part of banks’ balance sheets, but government securities expanded almost three times as quickly. The contrast puts the allocation of bank funding in focus: customer lending was still growing, yet state debt was taking a larger role in the sector’s expansion.

More funding, stronger buffers

Customer deposits, the main source of money banks use to expand their assets, rose 11.6% to Sh6.1 trillion from Sh5.5 trillion. Banks also increased their liquidity ratio, a measure of readily available assets against short-term obligations, from 55.8% to 59.3%. That left the sector well above the 20% statutory minimum. The central bank attributed the improvement to liquid assets growing 16.5%, faster than the 9.6% increase in short-term liabilities.

The sector’s average liquidity in 2025 stood well above the statutory minimum of 20%, according to the Central Bank of Kenya report cited by The Standard.

The sector’s total net assets—the value of assets after relevant deductions—rose 10.3%, or Sh781.8 billion, to Sh8.3 trillion. Government securities contributed Sh384.5 billion to that increase, exceeding the Sh240.5 billion added through customer loans. Balances held at the central bank increased by Sh188.9 billion, while cash rose by Sh3.7 billion. Net loans accounted for 46.5% of total net assets, compared with 29.9% for government securities and 8.6% for other assets.

State debt delivers growing interest income

The earnings figures show why the shift matters to banks as well as borrowers. Customer loans still generated most of the sector’s Sh818.4 billion in total interest income, contributing 60.6%. Government securities supplied another 34.8%. Deposits placed with other banks accounted for 4.4%, with other interest income making up the remaining 0.2%. Lending to customers remained the core income source, even as its contribution in shilling terms weakened.

Interest income from customer loans fell 7.6% to Sh495.6 billion from Sh536.1 billion in 2024. Income from government securities moved the other way, rising 9.1% to Sh284.4 billion from Sh260.7 billion. The increase did not prevent a broader decline in earnings: total banking-sector income fell 2% to Sh1,032.9 billion. The central bank attributed that drop mainly to lower interest on advances and placements, alongside reduced other fees and commissions.

The expansion in government securities also came as the Central Bank Rate, the benchmark policy interest rate, declined from 10.75% in February 2025 to 9% at year-end. The source reports the current rate at 8.75%. Meanwhile, government borrowing in the domestic market to finance its budget provided banks with a ready outlet for their funds.

The next point to watch is whether customer lending catches up with the growth in deposits and government securities. The 2025 figures show a banking system with stronger liquidity and a growing funding base, but also a widening contrast: loans remained its largest asset and interest-income source, while government debt delivered faster asset growth and rising interest receipts.