Kenyan Banks Report Surge in Non-Performing Loans

Rising Tide of Bad Loans Sparks Concern for Kenya’s Banking Sector
A sharp increase in non-performing loans (NPLs) is raising alarm within Kenya’s financial sector, as businesses and individuals struggle to service debt amidst a challenging economic climate. Data from the Central Bank of Kenya (CBK) for the first half of 2026 reveals that the gross NPL ratio has climbed to its highest level in several years, signaling growing stress on the balance sheets of commercial banks. The surge in bad debt is primarily concentrated in key sectors of the economy, including manufacturing, trade, and personal household loans.
Banking analysts attribute the downturn to a combination of high-interest rates, a weakened Kenyan shilling, and persistent inflationary pressures that have squeezed corporate profits and disposable income. Sectors that rely heavily on imported raw materials have been particularly hard-hit by currency depreciation, while retailers have faced reduced consumer spending power. What we are seeing is a direct correlation between macroeconomic headwinds and the ability of borrowers to repay their obligations. The situation is especially precarious for small and medium-sized enterprises, explained a senior banking sector analyst in Nairobi.
In response, banks are tightening their credit standards, making it more difficult for new borrowers to access loans, which could further dampen economic activity. The CBK has acknowledged the rising risk, urging lenders to strengthen their credit assessment frameworks and work proactively with distressed but viable borrowers on restructuring their obligations. However, this conservative approach by banks, while prudent for their stability, risks creating a credit crunch that could slow the very economic recovery needed to improve the NPL situation.
The outlook for the sector remains cautious. The trajectory of NPLs will be heavily dependent on the performance of the broader economy in the coming months. A significant and sustained decline in inflation and interest rates, coupled with a stabilization of the local currency, would provide much-needed relief to borrowers. Until then, the rising tide of bad loans presents a significant challenge, testing the resilience of Kenya’s banking industry and its capacity to support economic growth while managing its own financial health.