Banks increased lending to infrastructure-linked sectors last year, while cutting exposure to logistics and property, highlighting a shift in credit allocation amid caution in a gradually growing economy.
Analysis of the banking industry’s private sector credit data shows net domestic credit grew by Sh228.2 billion to Sh4.09 trillion in the year to December 2025, marking a 5.9 percent expansion after a 1.4 percent contraction in 2024.
The rebound from the first annualised contraction in more than a decade was largely driven by a relatively narrow set of sectors, with building and construction and mining emerging as the primary engines of growth even as banks trimmed exposure to services and logistics.
The Central Bank of Kenya (CBK) data shows that lending to the construction sector jumped by Sh49.9 billion, or 37.1 percent, to Sh184.4 billion, a turnaround from a contraction of 6.1 percent recorded in 2024.
Mining and quarrying posted the strongest growth rate, rising 41.3 percent to Sh28.4 billion, reversing a steep 22.7 percent decline the year before.
The increases in the allotments to the two sectors point to banks redirecting capital towards infrastructure projects and resource-based activities, sectors closely aligned with government priorities such as affordable housing and the push to commercialise mineral deposits.
The building and construction sector, in particular, benefited from the resumption of key road projects that had stalled across the country due to an estimated Sh650 billion in pending bills owed to international and local contractors.
About 585 road projects had been halted as a result of the debt overhang, but the government moved to unlock the projects in 2025 through a return-to-work formula. This involved payment of Sh123 billion as part of the settlement of obligations accumulated between 2005 and December 2024, effectively restoring cash flows to contractors and reviving demand for bank financing.
At the same time, lending to mining has been buoyed by regulatory and policy changes aimed at opening up the sector. Since October 2023, the government has been pushing to commercialise Kenya’s underground resource base after initially classifying 14 minerals as strategic.
The move formed part of the conditions for lifting a four-year moratorium on the issuance of prospecting, mining, and trading licences imposed in December 2019, effectively reopening the sector to investors under tighter regulatory oversight.
Agriculture also recorded a considerable jump, with lending rising 28.9 percent to Sh192 billion year-on-year last December, suggesting renewed appetite for financing food production and value chains after years of perceived risk in the sector.
The shift in lending patterns was also supported by the easing of monetary policy, with the CBK steadily lowering borrowing costs in a bid to stimulate private sector credit.
Since August 2024, the regulator’s Monetary Policy Committee has cut the benchmark rate from 13 percent to 9.0 percent by early December 2025, and further to 8.75 percent in February 2026, signalling commercial lenders to ease loan pricing for businesses and households.
The lower interest rate environment is beginning to unlock demand for credit after years of tight financial conditions, according to industry players.
James Mwangi, chief executive of Equity Group Holdings, said the consistent rate cuts translated into a stronger borrowing appetite.
“We are very excited by the trend that the CBK has taken over the last four quarters: cutting rates every time because it is making lending much more affordable,” Mr Mwangi said in March.
The industry data suggests the recovery in credit was uneven. Lending to transport and communications contracted by Sh37 billion, or 10.1 percent, to Sh330.2 billion, signalling a pullback from a sector that is typically a key enabler of trade and overall economic activity.
The decline came despite the key role of logistics in supporting commerce, pointing to heightened risk aversion among lenders or subdued demand for credit in the segment.
Real estate also saw credit shrink, falling by Sh9.4 billion, or 2.1 percent, to Sh449 billion, reinforcing signs of cooling in the property market, where developers have slowed projects, and buyers grapple with high financing costs.
Meanwhile, lending to trade — largely seen as a proxy for business activity — rose by Sh60.6 billion, or 8.9 percent, to Sh739.4 billion in the review period, indicating steady demand for working capital as firms restocked and rebuilt inventories after youth-led anti-government protests the year before.
Credit to manufacturing, however, remained subdued, growing a measly 1.2 percent to Sh584.2 billion following a contraction the previous year, underscoring persistent challenges in the industrial sector.
Lawrence Kimathi, finance director at KCB Group, said the sector has yet to regain its footing after the pandemic shock.
“Manufacturing has never quite fully recovered from Covid days. There’s policy work that is being done to support it, but there is still quite a lot of work to be done there,” Mr Kimathi said in March.
Consumer-linked borrowing strengthened at a faster pace, with loans for consumer durables increasing 11.7 percent to Sh479.6 billion, while credit to private households rose a modest 2.1 percent to Sh584.1 billion.
The pickup in household and retail lending suggests a gradual recovery in consumption in a credit market where banks were selective in extending loans to more capital-intensive sectors.
