Although borrowers have seen lower loan costs from commercial banks, lenders have restricted lending, maintained lengthy application processes and demanded high collateral, thereby slowing down credit access.
The Central Bank of Kenya (CBK) made the disclosure following its probe into whether banks have passed on the benefits of lower interest rates to customers.
Borrowers reported interest rates on loans have dropped by between two and three percent, while private sector credit rebounded to a near two-year high of 6.3 percent, though this remains below historical double-digit rates.
The average commercial banks’ lending rates declined to 14.9 percent in November 2025, down from 15 percent in October and 17.2 percent in November last year.
“Most respondents reported moderate access to credit. However, difficulties persisted, mainly due to slow loan processing caused by lengthy bureaucratic procedures, high collateral requirements that were beyond the reach of many customers and cautious lending practices,” the CBK said in the results of a survey of chief executives conducted in November.
The results reveal difficulties in obtaining loans, despite credit facilities become cheaper, influenced by CBK’s cut of its benchmark lending rate — the Central Bank Rate (CBR).
Since August 2024, the central bank has reduced its key policy rate at nine consecutive meetings, bringing the CBR down to nine percent from 13 percent, in an effort to lower borrowing costs and provide impetus for the recovery of private sector credit.
Cautious lending
Cautious lending practices have been adopted, particularly in the agricultural, professional services and creative industries.
Majority of the respondents to the November 2025 survey reported lower bank lending interest rates, which the CBK marked as a reflection of monetary policy easing.
“This reduction in lending rates has gradually supported renewed credit uptake by businesses, particularly for working capital and short-term investment needs," the CBK said.
Commercial banks’ lending to the private sector accelerated in November to 6.3 percent, marking the fastest pace in 19 months as lower costs spurred demand.
The last time private sector loan growth exceeded this level was in April last year, at 6.6 percent.
This latest pace of credit growth is in stark contrast to January, when lending contracted by 2.9 percent.
“Growth in credit to key sectors of the economy, particularly manufacturing, building and construction, trade and consumer durables, remained strong in November. This mainly reflects improved demand for credit in line with the declining interest rates,” CBK Governor Kamau Thugge said last week.
NPLs
Caution in fresh lending is partly informed by high non-performing loans, which remain elevated at 16.5 percent as of November 2025, having fallen from 16.7 percent in October and 17.6 percent in August.
Commercial banks have been making provisions to cover expected credit losses in line with accounting requirements.
Credit conditions are set to improve further as the industry adopts a new consolidated benchmark for pricing loans, which was effective December 1, 2025.
Nearly half of the 37 licensed banks have adopted CBR as their new benchmark, while the remainder is either using the Kenya Shilling Overnight Interbank Average (Kesonia) or a combination of CBR and Kesonia.
Kesonia is the rate at which banks borrow from each other in the short term. Commercial banks began applying the new pricing formulas to all new variable-rate loans on December 1, 2025, while changes to existing variable loans are expected to take place from February 28, 2026.
The new cost of loans will be the benchmark (CBR and/or Kesonia) plus a premium denoted 'K'.
