Kenya’s banking sector is undergoing a subtle but important transformation in how credit is allocated across the economy. While aggregate private sector credit expanded to approximately Sh4.09 trillion in 2025, up from Sh3.82 trillion in 2024, the more significant story lies in where this credit is flowing and where it is retreating.
A closer look at sectoral lending reveals a pronounced reallocation toward capital-intensive industries. Credit extended to infrastructure, energy, and water increased from Sh482.2 billion to Sh594.9 billion, reflecting growing confidence in long-term public and private infrastructure pipelines. Similarly, lending to mining and quarrying surged sharply from Sh84.0 billion to Sh148.3 billion, indicating renewed interest in resource-linked sectors. Building and construction saw only marginal growth, rising from Sh489.0 billion to Sh494.9 billion, suggesting cautious optimism in real estate-related financing.
In contrast, traditionally dominant sectors are seeing a contraction in credit allocation. Lending to trade declined from Sh614.9 billion to Sh593.9 billion, while personal and household loans fell from Sh1.307 trillion to Sh1.264 trillion. This reduction in consumer and SME-linked credit signals a tightening stance toward segments typically associated with higher default risk or lower collateral quality.
Interestingly, this shift is occurring against a backdrop of improving liquidity conditions. The interbank rate eased significantly from 9.4% in December 2024 to 3.8% in December 2025, indicating increased availability of short-term funds within the banking system. Additionally, the government’s clearance of Sh61 billion in pending bills injected further liquidity into the economy, potentially freeing up cash flow for both businesses and lenders.
Despite these favorable conditions, private sector credit growth remained subdued, averaging only 1.6% over the period. This suggests that the issue may not be liquidity constraints but rather risk appetite, regulatory considerations, or structural shifts in lending strategy by financial institutions such as the Central Bank of Kenya.
The evolving lending landscape may also reflect banks’ increasing preference for sectors perceived as more stable or aligned with long-term economic growth priorities. Infrastructure, energy, and mining projects often involve government participation, stronger collateral frameworks, or longer-term contracts, which can reduce credit risk. In contrast, trade and household lending typically carry shorter tenors and higher exposure to economic volatility.
This reallocation raises important questions about credit accessibility for key drivers of economic activity. Trade and consumer lending have historically supported small businesses and household consumption, both of which are critical for economic resilience. A contraction in these areas could dampen short-term demand and slow down inclusive growth.
At the same time, the shift toward infrastructure and extractive sectors may support long-term economic expansion by enhancing productive capacity. However, the balance between growth-oriented lending and inclusive credit distribution will be crucial in determining the overall health of the financial system.
In summary, Kenyan banks appear to be recalibrating their lending models quietly but decisively toward sectors they perceive as lower risk and higher return. While this may strengthen balance sheets, it also raises critical concerns about the availability of credit to traditional growth engines of the economy.
