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Depositors in top banks lose Sh63.7bn in a year as rates dip
Latest CBK data shows deposit rates have fallen further to 6.82 percent as of February this year, marking a 0.31 percentage points drop since December. Over the same period, lending rates have eased by 0.06 percentage points to 14.78 percent, expanding banks’ margin further.
Kenyans with money to keep in the country’s top nine banks saw returns drop Sh63.7 billion last year as lenders cut savings rates more aggressively than lending rates in a push to boost profits.
Analysis of banks’ financial results for the year ended December 2025 show the top lenders paid Sh201.83 billion to depositors from Sh265.53 billion a year earlier, a 23.9 percent drop.
This emerged in a period when deposits in the vaults of banks like KCB Group, Equity Group, Co-operative Bank of Kenya and NCBA Group rose by Sh553 billion to Sh6.186 trillion, underlining the impact of the falling interest rates in the wake of cuts on the benchmark rate.
The drop in cost of funds followed pressure from the Central Bank of Kenya (CBK) for banks to cut their lending rates and extend credit to the productive private sector, which had shelved borrowing plans due to costly credit.
The regulator cut its indicative rate – Central Bank Rate (CBR) – for six consecutive sessions to boost lending and threatened banks with penalties for being slow to cut loan costs.
This forced lenders to cut fixed deposit rates to an average of 9.76 percent in February last year from double-digits in 2024 and closed the year at 7.13 percent.
The quick cut in deposit rates, accompanied by a slow reduction of lending rates, saw banks post a profit growth of 16.5 percent to Sh268.96 billion despite a tough economic environment.
The banks’ average spread – difference between lending and deposit rate - was 7.69 percent in December compared to 6.65 percent in February.
“Last year, we strategically reoriented our funding mix towards current and savings accounts. This led to a slight decline in [the growth of] our deposit book but lowered the funding costs,” said John Gachora, the managing director at NCBA.
The nine banks, including Stanbic Holdings, Absa Bank Kenya, Standard Chartered Bank Kenya, DTB Group and I&M Group, posted declines of up to 41.7 percent in interest expense during the year in review.
Cash-rich individuals and corporates who were benefiting from the high interest rates regime are now bound to look for new places to park their funds following the drop in rates.
Eager to lock in attractive yield rates, investors have flooded the bond markets amid rising liquidity.
Last year marked a shift from 2024 when banks had to raise deposit returns to 26-year highs of 11.48 percent to entice customers away from investing in government securities amid rising rates.
Interest expense on deposits for NCBA dropped the sharpest at 41.73 percent or Sh15.94 billion to Sh22.26 billion in the period it received an additional Sh29.85 billion deposits.
Equity Group saw a 26.4 percent or Sh12.79 billion drop to Sh35.68 billion despite customer deposits rising by Sh55.49 billion to Sh1.455 trillion. Over the same period, Stanbic Bank Kenya’s expense on deposits dropped by Sh10.34 billion or 49.2 percent to Sh10.66 billion as deposits grew by 19.4 percent to Sh384.2 billion.
The average price of loans closed December at 14.82 percent compared with 16.89 percent in a similar period in 2024. The mismatch in the pace of declines in deposit and lending rates widened banks’ margins to 7.69 percentage points at the end of December, being the highest in nine years.
Many banks were rejecting expensive deposits on the back of increased liquidity.
Standard Chartered Bank of Kenya, which was the only top lender to post a decline in deposit book (four percent to Sh283.45 billion), attributed this partly to locking out expensive deposits, even as its net interest income fell by 13 percent.
“The decline [in net interest income] has partially been mitigated by lower cost of funds on customer deposits driven by deliberate actions to reduce expensive deposits and growth in interest income from government securities on account of volume growth,” said Kariuki Ngari, the outgoing CEO at StanChart.
Banks argued that deposit rates responded faster to CBR cuts because lending rates embed longer-term risk assumptions, capital costs, and provisioning expectations among other considerations and not just the cost of funds.
Savers are looking at another year of reduced returns. Latest CBK data shows deposit rates have fallen further to 6.82 percent as of February this year, marking a 0.31 percentage points drop since December. Over the same period, lending rates have eased by 0.06 percentage points to 14.78 percent, expanding banks’ margin further.
At 6.82 percent, the returns on deposits trail those of bonds that are paying a range of 12-14 percent, money market funds that are offering up to 13 percent and the Nairobi Securities Exchange where year-to-date returns are at 12.4 percent.
