Kenyan banks' bad-loan ratio fell to 16.0% in 2025, CBK stability report says

The ratio of non-performing loans (NPLs) at Kenyan banks fell to 16.0 per cent at the end of 2025 from 17.1 per cent a year earlier, while capital and liquidity stayed well above regulatory minimums, the Central Bank of Kenya (CBK) said in its Kenya Financial Sector Stability Report 2025, published on 3 November 2026.

The report, an assessment by Kenya's financial sector regulators under Section 4(2) of the Central Bank of Kenya Act, covers 2025 and the first half of 2026. It describes the financial system as stable but says vulnerabilities are elevated because of rising public debt and higher energy prices linked to the wars in the Middle East and between Russia and Ukraine. Asset quality kept improving through June 2026 on new lending and increased repayments.

The banking section covers 38 commercial banks, one mortgage finance company and 14 microfinance banks. Total net assets of the banking sector rose to KSh 8,349.7 billion in December 2025 from KSh 7,568.0 billion a year earlier. Core capital stood at 18.2 per cent of total risk-weighted assets, against 17.3 per cent in December 2024. The statutory minimum is 10.5 per cent. Banks' profit before tax rose 17.64 per cent in 2025 to KSh 306.3 billion.

The liquidity ratio averaged 59.29 per cent in December 2025, up from 55.80 per cent in 2024, and reached 61.2 per cent in June 2026. The regulatory minimum is 20 per cent.

Gross NPLs were KSh 696.9 billion on gross loans of KSh 4,347.2 billion at the end of 2025. By market share, banks are divided into large, medium and small peer groups of eight, 11 and 20 banks. The small banks had an average NPL ratio of 29.2 per cent, up from 23.4 per cent a year earlier. Medium banks averaged 13.6 per cent, down from 15.9 per cent, and the large banks 15.3 per cent, down from 18 per cent.

The CBK's May 2026 stress test, run on audited data for the year to December 2025, found that a severe 27.4 per cent rise in NPLs would cut the sector's core capital ratio from 17.6 per cent to 16.1 per cent. Four banks, all in the small peer group, would fall below the 10.5 per cent minimum and need KSh 2.1 billion. The May 2025 test showed six banks and KSh 5.3 billion. The test projects the NPL ratio at 18.3 per cent by December 2026 in the severe scenario, against 16.5 per cent in the baseline.

Three banks were left out of the 2026 test because they were already below the minimum before any shock; they need KSh 2.4 billion. Of the other 36, one fell below the minimum after full provisioning and needs KSh 0.9 billion.

In the interest-rate stress test, a severe combined shock of credit losses and bond repricing would cut the core ratio from 18.30 per cent to 16.49 per cent, with 11 banks failing and needing KSh 19.73 billion.

Banks' holdings of government securities rose from KSh 2,114.75 billion in 2024 to KSh 2,499.27 billion in 2025. Without treasury bonds as liquid assets, the liquidity ratio would be 27.83 per cent rather than 59.29 per cent. The report says a shock to the value of government securities would pose significant liquidity risks to banks, a possible sovereign–bank nexus vulnerability.

Credit remained concentrated in manufacturing, trade and households, which together accounted for 54.4 per cent of private-sector credit.

The 14 microfinance banks lost KSh 2.9 billion before tax in 2025, against KSh 3.5 billion in 2024. The report expects the sub-sector to contract further in the medium term.

The Kenya Deposit Insurance Corporation (KDIC) covers deposits up to KSh 500,000 per depositor. Its fund grew 15.31 per cent to KSh 287.00 billion in December 2025, and 83.31 million accounts, 99.06 per cent of the total, were fully covered. Insured deposits were 13.66 per cent of the KSh 6.30 trillion in total deposits, excluding interbank deposits, below the 20 per cent global standard the report cites.

The stress-test section recommends that banks provide adequately for their assets, that each bank's top borrowers be monitored more closely and that the possible impact of climate change on the financial sector continue to be monitored. The Emergency Liquidity Assistance framework, which would let the CBK lend to solvent financial institutions facing transient liquidity shocks that they cannot cover from the money market, is expected to be operational by the end of 2026.