Kenyan Banks Boost Govt Debt Holdings as Private Sector Lending Slows

Key Takeaways

Kenyan banks are leaning on low-risk government debt amid softening loan demand and rising macroeconomic uncertainty. Falling yields have not deterred investment in Treasury bills, driven by liquidity needs and limited short-term credit appetite. High taxes and inflation continue to pressure household budgets, weakening the retail loan market. While corporate lending may offer modest upside, analysts suggest banks will maintain a cautious stance until economic fundamentals improve. Equity Group and Standard Chartered’s shift back toward sovereign paper—despite falling returns—highlights a preference for predictable yield over retail credit risk. “Lazy banking,” a term used to describe risk-averse capital allocation, appears to be prevailing in 2025. Still, with interest rates falling and consumer pressure easing slowly, banks may begin redirecting funds toward private sector lending later in the year. For now, however, government securities remain the preferred buffer for navigating subdued demand and preserving balance sheet health in a tightening economic environment.