The value of loans tapped from Kenyan banks for which borrowers have not serviced for at least three months fell by Sh40.1 billion in the year to June 2026 amid a decline in borrowing rates that have eased pressure on customers.
Central Bank of Kenya (CBK) data shows gross non-performing loans (NPLs) fell to Sh688.2 billion by the end of June from Sh728.5 billion a year earlier even as the banking sector expanded lending.
Gross loans increased by Sh498.2 billion or 12 percent to Sh4.65 trillion from Sh4.15 trillion over the period, pointing to an improvement in asset quality as lenders grew their loan books.
The decline in bad loans came as CBK eased its monetary policy stance, cutting the Central Bank Rate (CBR) to 8.75 percent at the end of June, from 10.75 percent a year earlier. The rate was last reduced in December 2025 from 9.25 percent to 8.75 percent and has remained at that level to date.
Lenders say the lower policy rate has gradually reduced borrowing costs, offering relief to households and businesses servicing loans and easing repayment pressure. CBK data shows average lending rates fell to 14.37 percent in June, compared with 15.28 in the same period last year.
The sector’s improvement in asset quality coincided with improved profitability across the banking sector. CBK data shows banks’ cumulative profit before tax rose 16.4 percent to Sh172.4 billion in the six months to June 2026, up from Sh148.1 billion in the same period last year.
The latest figure represents the fastest growth in half-year net profit performance in four years. It is dwarfed by a 24.1 percent rise in pre-tax earnings to Sh119.7 million that the sector posted in six months ended June 2022 on recovery from the dip posted in the previous period due to Covid-19 pandemic disruptions.
The reduction in the stock of non-performing loans was more pronounced among large banks, with KCB Bank Kenya and Equity Bank Kenya on top. This came in the period the two banks stepped up recoveries especially from large corporates.
“NPL improved as targeted resolution initiatives, including recoveries, rehabilitations, full and final settlements, government engagements on associated entities, and strategic write-offs, delivered positive outcomes,” said KCB.
Data on the 11 Nairobi Securities Exchange (NSE)-listed banks, which includes all the nine lenders classified as large, showed combined gross NPLs from Kenyan banking operations fell by Sh51.56 billion, or 8.8 percent, to Sh534.18 billion in June this year from Sh585.74 billion a year earlier.
The larger decline among the listed lenders compared with the Sh40.1 billion sector-wide reduction suggests the figure was offset by increases in defaults among some medium and small-sized lenders during the review period.
Equity Kenya’s gross NPLs fell by Sh26.24 billion to Sh83.21 billion as that of KCB Kenya eased by Sh17.7 billion to Sh182.17 billion, accounting for 85.2 percent of the decline in gross NPLs among the 11 NSE-listed lenders.
"The quality of the assets is improving, with the group moving from 13.7 percent NPL ratio to 9.5 percent. We are really glad we are back in single digit and we expect this trend to continue,” said James Mwangi, CEO at Equity Group.
Co-operative Bank of Kenya reduced its NPL stock by Sh3.51 billion to Sh66.07 billion, while I&M Bank Kenya and Stanbic Bank Kenya recorded declines of Sh2.64 billion and Sh1.22 billion respectively.
Absa Bank Kenya recorded a 17.8 percent reduction in gross NPLs to Sh36.36 billion as Standard Chartered Bank Kenya’s bad loans fell 16.9 percent to Sh7.97 billion. HFCB Bank recorded a 2.1 percent reduction worth Sh238.2 million.
“Our impairments reductions were driven by improved portfolio quality and rigorous collection efforts,” said Absa during the release of half-year results.
The trend of easing defaults was, however, not uniform. Diamond Trust Bank’s gross NPLs rose by 10.8 percent or Sh3.86 billion as that of NCBA went up 7.3 percent or Sh2.69 billion. Family Bank Kenya saw a 19.2 percent or Sh2.93 billion rise while.
Family Bank, which mostly banks small businesses and individuals, said some of its borrowers who fell into default due to Covid-19 disruptions were yet to normalise repayments, thereby contributing to the rise in the stock of NPLs.
“The facilities that have raised that number are just a few isolated cases, and they relate to the old vintage running up to the Covid-19 period. A number of our customers who were affected have not managed to recover and we are working with them. We believe it is only a matter of time,” said Paul Ngaragari, chief finance officer at Family Bank.
