By The Weekly Vision Reporter
Kenya’s monetary easing cycle was meant to unlock cheaper credit for businesses and households. Yet nearly two years after the Central Bank of Kenya (CBK) began cutting its policy rate, the benefits remain unevenly distributed, with commercial banks posting robust profits while many borrowers still face stubbornly high loan costs.
The Central Bank Rate has fallen from a peak of 13 per cent in August 2024 to 8.75 per cent, where it has been held since February 2026. Average commercial bank lending rates, however, have declined far more modestly, to 14.3 per cent in July 2026 from 17.2 per cent in November 2024. Deposit rates, by contrast, have dropped more sharply, from 8.4 per cent to around 6.8 per cent.
The result is a widening interest-rate spread, precisely the margin that has underwritten strong half-year earnings across the banking sector, even as borrowers wait for relief that has yet to fully materialise.
Nine listed banks reported a combined net profit of KSh144.9 billion for the first half of 2026, up 16.9 per cent on the previous year. The improvement has been driven by cheaper funding costs and falling non-performing loans, rather than a dramatic expansion in affordable private-sector credit.
A CBK survey of chief executives found that nearly half of firms (49.7 per cent) are now relying on internally generated funds, up from 38.1 per cent a year earlier, with many citing what respondents described as stickiness in commercial bank lending rates despite the easing of policy rates.
Three signals worth watching
1. Bank earnings are outpacing rate relief. Equity Group recorded a 39 per cent rise in profit before tax to KSh57.8 billion, KCB Group posted a 20.8 per cent increase to KSh49.3 billion, and Co-operative Bank achieved a record KSh23.1 billion before tax. These results reflect lower impairment charges and reduced interest expenses, yet the average lending rate remains more than five percentage points above the policy rate.
KCB’s finance chief, Lawrence Kimathi, has been candid about the shift in the sector’s economics, telling stakeholders that, in his words, the days of net interest margins of 9 to 10 per cent in the Kenyan market are firmly behind the industry. He placed current net interest margins in the 6.5 to 7 per cent range for efficient operators, a level still comfortable by regional standards even as it narrows from historic highs.
2. Government debt is a bank’s best customer. Local lenders are projected to earn KSh342 billion in interest on State loans in the 2026/27 financial year, part of total domestic interest payments of roughly KSh500 billion. With public debt exceeding KSh13 trillion and commercial banks holding approximately KSh2.2 trillion in government securities, around 27 per cent of banking-sector assets, the Treasury has become a highly attractive, low-risk client for an industry that could otherwise be extending that capital to businesses and households.
3. A crowding-out pattern in asset allocation. Between June 2024 and May 2026, bank investments in government securities rose by 58 per cent, while private-sector lending grew by only 11 per cent, according to Kenya Bankers Association (KBA) data. A KBA official told a parliamentary forum that a crowding-out effect has taken hold, with banks directing the bulk of their investment towards government paper rather than onward lending to ordinary customers. Although private-sector credit has recently recovered to double-digit growth rates, the continued preference for sovereign paper limits how fully the easing cycle reaches smaller firms and households.
The question of who ultimately benefits from the current easing cycle remains underdeveloped relative to the celebratory headlines on bank profits. For businesses weighing expansion plans and households assessing mortgage or asset-financing costs, the practical reality is that policy easing has, so far, done more to compress banks’ funding costs than to cut the price of borrowing.
A closer examination of rate transmission, the composition of bank balance sheets, and the lived experience of ordinary borrowers would help establish whether the current cycle is primarily financing the State’s fiscal needs or genuinely expanding productive private credit, a distinction that will matter considerably to Kenya’s growth trajectory heading into 2027.
