Kenya’s financial system is stable and resilient, supported by reforms, adequate capital buffers, and a rebound in market activity. This is the key message from the Kenya Financial Sector Stability Report (September 2025), prepared jointly by the Central Bank of Kenya and other regulators through the Financial Sector Regulators Forum. The report reviews the state of the economy and financial sector performance in 2024 and early 2025, highlighting strengths, vulnerabilities, and emerging risks.
Economic growth slowed to 4.7 percent in 2024, down from 5.6 percent in 2023, reflecting global headwinds, tight fiscal conditions, and uneven recovery in key sectors. Growth was driven by transport, finance, ICT, tourism, and a rebound in agriculture. Looking ahead, GDP is projected to expand by 5.3 percent in 2025. This growth is however dependent on developments in the domestic and global prices of commodities, monetary policy stance, fiscal consolidation, and credit market conditions. However, risks remain from narrow fiscal space, high debt service obligations, inflationary pressures, and volatility in global financial markets.
The banking sector remains the anchor of the financial system. It was profitable in 2024, with capital adequacy and liquidity ratios above regulatory requirements. Reforms in the interbank market and greater use of government securities as collateral strengthened liquidity management. Despite these gains, the sector continues to face credit risk. The non-performing loans ratio increased, with stress concentrated in sectors such as manufacturing, trade, and households. Credit concentration in a few sectors also heightens vulnerability to shocks. Smaller banks still face challenges accessing interbank liquidity, reflecting ongoing segmentation in the market.
The insurance industry registered premium growth and better investment returns but continued to struggle with underwriting performance. The combined ratio remained above 100.0 percent, signaling that claims and expenses outweighed premiums collected. Insurers also face rising operational risks, particularly cyber threats and technology-related fraud.
In the capital markets, activity rebounded. Equity turnover and market capitalization rose, and foreign investor participation increased to 50.9 percent in 2024, up from 48.9 percent in 2023. Collective Investment Schemes recorded strong momentum, with assets under management rising by 134.7% year-on-year basis to KES 596.3 bn by June 2025,from KES 254.1 bn. However, the corporate bond market remained subdued, limiting long-term financing options for companies.
The pensions sector grew in terms of assets and membership, even though contributions declined. This indicates reliance on investment performance to drive growth. SACCOs also reported stronger asset quality and profitability despite macroeconomic pressures. Meanwhile, financial market infrastructure continued to strengthen. The rollout of DhowCSD enhanced settlement efficiency, collateral management, and liquidity flows across the system.
Overall, the report concludes that Kenya’s financial system is resilient, but several risks must be managed. External risks from slowing global growth, capital flow volatility, and commodity price swings could affect domestic stability. Internally, fiscal pressures, rising debt service, and credit risks in the banking sector remain key concerns. Cybersecurity and operational vulnerabilities are also growing in importance.
The regulators recommend continued fiscal consolidation, stronger credit risk management, and policies that balance inflation control with credit access. They also stress the need to deepen capital markets to diversify financing channels, support product innovation, and improve investor confidence.
For investors and market participants, the report signals both opportunities and caution. The rebound in equities and pooled funds highlights growing investor appetite, while sustained reforms offer long-term stability. At the same time, credit market stress, limited product diversity, and external headwinds call for prudent investment and risk management strategies.
Kenya’s financial system enters 2025 in a position of strength, but resilience will depend on maintaining reform momentum, adapting to new risks, and ensuring coordination across regulators.
