Kenya’s top-listed banks recorded Sh50 billion in paper gains from government bond holdings in 2025, building on the valuation increases seen in 2024 as prices of the papers continued to rise in the secondary market due to a fall in interest rates.
The nine major lenders—KCB, Equity, DTB, Absa, NCBA, Standard Chartered, Co-operative, Stanbic, and I&M—in 2024 booked valuation gains of Sh58.6 billion on the government bonds held for trading purposes, reversing an impairment of Sh37 billion in 2023, when interest rates rose sharply.
Equity Group recorded the largest fair value gain in its bond holdings at Sh19.9 billion in 2025, up from Sh15.76 billion in 2024. The bank held Sh299 billion worth of government bonds for trading purposes in the period.
It was followed by DTB with an unrealised gain of Sh11.08 billion on its bonds, up from Sh5.2 billion in 2024, while KCB Group’s gains stood at Sh6.32 billion, compared to Sh8.87 billion in 2024.
Bond prices and yields in the secondary market have an inverse relationship, whereby a rise in one is accompanied by a fall in the other.
Interest rates on government securities have been falling since August 2024, with bond rates coming down from highs of up to 18.5 percent to the present 11 to 13 percent range, and Treasury bill rates halving from 17 percent to the current range of 7.4 to 8.3 percent.
The fall in rates has been reflected in the actions of the Central Bank of Kenya to cut its base lending rate for the 10th straight time to the present 8.75 percent from 13 percent in August 2024.
When rates on new bonds entering the market (known as primary sales) are falling, holders of the existing papers that pay higher interest rates demand higher prices to sell their units in the secondary market because they would not get similar returns when reinvesting the funds in new bonds.
At the same time, the buyers are willing to pay a premium to secure these secondary market bonds, given the lower returns available in the primary market. A unit of a bond is priced at Sh100, but they usually sell above or below this price in the secondary market, depending on the prevailing demand.
For banks, financial reporting standards demand that they report the value of their bond holdings based on current market prices, rather than the historical cost of acquisition.
Therefore, when publishing their financials, they can either indicate an unrealised gain or a loss on their holdings, depending on the movement of bond prices in the Nairobi Securities Exchange.
However, the fair value gains or losses can only be realised in the event of a sale of the securities, meaning that they do not affect the lender’s net profit so long as they remain in hand.
The risk to the large local banks from the price fluctuations of these securities (known as sovereign exposure risk) is seen as minimal due to their high liquidity and diversified sources of deposits, especially from the large pool of retail depositors, which makes it unlikely that they would need to liquidate the bonds under distress.
Banks also hold other securities, beyond the Kenyan government bonds and Treasury bills, whose current market valuations are also factored in when calculating the fair value losses or gains. These include holdings of sovereign bonds such as the Kenya Eurobonds.
Over the past year, the Kenyan sovereign bonds have seen their yields fall as the country addressed short-term refinancing pressure through swaps and buybacks, helping raise their valuation when they appear on local banks’ books.
At the end of last week, Kenya’s outstanding Eurobonds were trading at yields of between 7.8 percent and 9.6 percent, down from highs of up to 22 percent in early 2024 when investor concerns about the country’s ability to service external debt were at a peak.
