New loans to households and businesses rose to a two-year of Sh77.8 billion in September, offering a boost to the economy as banks resume lending on the back of reduced borrowing costs.
Data from the National Treasury shows the monthly credit flows reached the highest point since topping Sh82.5 billion in July 2023.
The record monthly disbursement of loans came in the backdrop of Kenya’s private sector activity, marking an expansion for the first time since April as per data from Stanbic Bank Purchasing Managers Index (PMI).
The higher monthly flows have coincided with the turnaround in private sector credit growth, which reached 5 percent in September 2025, after rising steadily from its lowest point in January 2025 when it marked a contraction of 2.9 percent.
The recovery comes amid a slow reduction in commercial bank interest rates ahead of the implementation of a new risk-based pricing framework, which is expected to hasten the drop in borrowing costs for bank customers after Central Bank of Kenya (CBK) rate cuts.
“Credit to the private sector is gradually recovering with a decline in lending rates. Growth in private sector credit from the banking system continued to improve and stood at 5 percent in September, compared to a contraction of 2.9 percent in January 2025,” the National Treasury said.
Growth in credit has the effect of spurring economic activity by putting money in the pockets of spenders who are households.
Renewed spending by the households usually raises the demand for goods and services by firms, incentivising the businesses to borrow to expand their product offering which ultimately creates higher economic output.
Stanbic’s PMI closed above 50 points in September for the first time since April at 51.9 points from 49.4 points a month earlier.
Readings above 50 indicate growth in business activity while those below signal a contraction.
CBK has been working to induce bank lending to businesses and households, making eight consecutive cuts to its benchmark since August 2024 to move the key lending to 9.25 percent from a high 13 percent.
Short-term interest rates including the overnight interbank lending rate, savings and deposit rates have all fallen in tandem with the Central Bank Rate (CBR), but the commercial bank borrowing rates have remained largely unchanged.
“Bank lending rates declined to 15.1 percent in September 2025 from a peak of 17.2 percent in November 2024 and are expected to decline further,” the National Treasury added.
CBK has also attributed the credit recovery to the decline in lending interest rates and resilient economic activity, but Governor Kamau Thugge has put pressure on banks to cut the rates further to align with the reduction in CBR.
The apex bank is banking on the implementation of the new risk-based pricing framework, to take borrowing cost by banks with rollout expected to begin promptly from December 1.
“There should be no excuse by banks for whatever reason... there have been quite a number of excuses. This time, there won’t be an excuse. Once we lower the rate, banks should also lower their rates,” Dr Thugge said.
Banks are expected to begin implementing the new risk-based pricing framework starting with new loans next month, while previously issued facilities will be transitioned to the framework by the end of February 2026.
New loan pricing under the framework is arrived at by adding the Kenya Shilling Overnight Interbank Average (Kesonia), formerly the interbank rate to each borrower’s risk premium which has been denoted as K.
Banks have previously admitted to difficulties in reducing borrowing costs to customers in line with expectations including the lack of a common base for industry borrowing rates and the poor development of the prior risk-based framework.
Private sector credit growth remains a far cry from its historical double-digit rates despite the improved recovery over recent months.
CBK first came-up with the risk-based pricing framework during the pandemic as it pushed to bring transparency and clarity in how banks price loans.
The entry of the framework was preluded by the near-four-year stay of interest rate caps which were enforced by Members of Parliament who accused banks of failing to tame runaway borrowing costs.
CBK has challenged commercial banks to quickly adapt to the new pricing model to take advantage of the benefits of transparency to customers.
“If I were you, I would move as quickly as possible to implement this framework because Kenyans will choose to go to a bank with a transparent framework,” Dr Thugge added.
Cheaper credit costs are usually expected to incentivise higher demand for credit by businesses and households.
