Kenyan banks have shifted their focus towards investing in government securities, with a notable increase in holdings in 2025. According to the Central Bank of Kenya's (CBK) latest report, banks held Sh2.5 trillion in government securities by December 2025, up from Sh2.1 trillion the previous year. This represents an 18.2 percent increase during the year. In contrast, loans and advances to customers grew by only 6.6 percent to reach Sh3.9 trillion.
The banking sector's liquidity ratio improved significantly in 2025, increasing by 6.3 percent to 59.3 percent, up from 55.8 percent. The CBK's Bank Supervision Annual Report 2025 attributes this growth to a higher increase in total liquid assets compared to short-term liabilities. Total liquid assets grew by 16.5 percent, while short-term liabilities increased by 9.6 percent. The banking sector's average liquidity in 2025 was well above the statutory minimum requirement of 20 percent.
Customer deposits, which are a primary source of funding for banks, grew by 11.6 percent from Sh5.5 trillion to Sh6.1 trillion. Despite this growth, banks appear hesitant to extend more credit to customers, instead preferring to invest in government securities. The report notes that government securities contribute significantly to the growth of banks' asset base and profit.
The banking sector's total net asset base grew by 10.3 percent to Sh8.3 trillion from Sh7.6 trillion in the previous year. This increase is attributed to growth in government securities, loans and advances, balances at the Central Bank, and cash. Government securities accounted for 29.9 percent of the total net assets, while loans and advances accounted for 46.5 percent.
Interest income from government securities grew by 9.1 percent to Sh284.4 billion, while interest income from loans and advances to customers declined by 7.6 percent to Sh495.6 billion. The report notes that total income for the banking sector decreased by 2 percent to Sh1,032.9 billion in December 2025.
The Central Bank Rate (CBR) currently stands at 8.75 percent, and interest rates have been subdued, falling from 10.75 percent in February 2025 to 9.0 percent by the end of the year. Despite this, banks have continued to invest heavily in government securities, which provide a ready market for the government's budget funding.
The preference for government securities is evident in the sector's performance, with interest income from these securities providing significant growth. The banking sector's performance is closely tied to the government's fiscal policies, and the trend is expected to continue in the near future.
Key points
- Kenyan banks invested Sh2.5 trillion in government securities in 2025.
- Loans and advances to customers grew by 6.6 percent to Sh3.9 trillion.
- The banking sector's liquidity ratio improved by 6.3 percent to 59.3 percent.
