How low-interest regime shrunk banks' half-year interest income

Banks have taken a hit on their financials with reduced income charged on loans following the low interest regime that the Central Bank of Kenya (CBK) started in August 2024. year.

Half year financials published by several banks show how their total interest income and, in some cases, net interest income dropped, as the institutions were forced to adjust their lending rates downwards.

Particularly, income from loans and advances to customers dropped in the period compared to the previous year.

The financial results from Family Bank, Standard Chartered, Equity Bank, Absa Bank Kenya and, Diamond Trust Bank show how lowering of the rates affected their income statements.

Paul Ngaragari, Chief Financial Officer at Family Bank, noted that depressed household incomes as a result of unfavourable macro-economic indicators reduced appetite for loans making government securities the preferred investment option for banks to stash the cash.

Both Family Bank and Equity Group Holdings have revealed an intention to offload a majority of their funds stashed in government paper in favour of loans to the private sector.

The Central Bank Rate (CBR) which is the base lending rate in the market stood at 13.0 per cent in August 2024 after CBK hiked it in February 2024.

However, as macro-indicators changed and the shilling got stronger, CBK embarked on reducing the rate gradually in every cycle that by June 2025, the rate stood at 9.75 per cent.

In the August cycle, the rate was reduced further to 9.5 per cent.

This reduced interest income banks had enjoyed from both government paper and loans to the private sector.

Banking patterns

Financial statements from Absa Bank Kenya show the institution’s total interest income in the six months to June 2025 was Sh29.9 billion compared to Sh32.6 billion in the same period in 2024. Net interest income also dropped from Sh22.7 billion to Sh22.0 billion.

The bank’s interest income from loans and advances in the period reduced by almost Sh5 billion to Sh22.4 billion, a drop of 18.2 per cent. Even so, the bank still reported a growth of nine per cent on profit after tax.

“Revenue closed the quarter at Sh31.5 billion, a marginal decline compared to last year attributable to lower interest rates margins which saw our net interest income drop by 2.9 per cent. This was, however, offset by growth in non-interest income which grew by 3.3 per cent, supported by our payments business,” Absa Kenya explained in its financial statements.

Total interest income for Equity Bank Kenya for the first six months of 2025 dropped to Sh51.1 billion from Sh53.4 billion in the previous period. Net interest income for the period however went up from Sh27.7 billion to Sh32.8 billion.

This was made possible by the bank reducing its total interest expenses from Sh25.6 billion to Sh18.3 billion. Interests on deposits and placements from banking institutions dropped sharply from Sh2.4 billion to Sh251.8 million.

Equity Group Holdings Chief Executive and Managing Director James Mwangi said the lender’s plan is to shift its interest to loaning the private sector considering returns from government paper has also gone down to averagely eight per cent.

“We will optimise profitability if we are able to reduce government securities from Sh540 billion to about Sh75 billion. That means about Sh450 billion need a home in loans,” he said during the lender’s release of their half year results.

Mwangi said while the government is offering eight per cent returns, customers are willing to pay 16 per cent.

Loans and advances fetched Equity Bank Kenya Sh27.4 billion from January to June this year, compared to Sh30.5 billion the previous year. Government securities on the other hand improved slightly to Sh22.6 billion from Sh21.0 billion.

“If you shift government securities to lending towards small and medium enterprises (SMEs), it will be 16 per cent. Banking is intermediation. It is not being a lazy bank, giving money to government,” said Mwangi.

Total interest improved

“If we take a risk, it will be very well priced, actually overpriced,” added Mwangi explaining the challenge with non-performing loans (NPLs) in the market. Standard Chartered Bank Kenya Limited, who published their half year financials on August 21, also recorded a drop in their total interest income from Sh19.2 billion as at June 2024 to Sh17.2 billion in June 2025.

Net interest income dropped to Sh15.3 billion in that period from Sh16.5 billion. The bank’s financials show interest income from loans and advances in the period stood at Sh9.4 billion from Sh11.5 billion as at June 2024.

For KCB Bank Kenya, interest income from loans and advances grew from Sh44.7 billion to Sh49.0 billion. The bank’s total interest income improved to Sh69.2 billion from Sh67.1 billion.

The bank reduced its total interest expense from Sh27.3 billion as at June 2024 to Sh22.5 billion in June 2025. Net interest income improved to Sh46.7 billion.

Total interest income for Family Bank improved from Sh9.2 billion to Sh11.4 billion. Income from loans and advances improved to Sh7.8 billion from Sh6.8 billion. Government securities earned the bank Sh3.4 billion in the period compared to Sh2.3 billion.

This drop in government securities; while also being linked to the drop in T- Bill rates, the bank did reduce exposure on government paper held to maturity which closed the six months period at Sh21.6 billion compared to Sh22.1 billion in the half year of 2024.

Family Bank Chief Financial Officer Paul Ngaragari noted of subdued economic activities in 2024 that affected customers’ disposable income.

“But that has since changed between January and June this year,” he said during the bank’s financial release, adding that customers are flocking back for financing for both consumption and business.

When the bank released its full year results in March 2025, the financials showed that Sh51.2 billion as at March 2025 compared to Sh32.7 billion in March 2024 had been stashed in government paper.

This is a growth of 57 per cent compared to the 10 per cent growth in loans to Sh96.2 billion recorded in the same period.

“Even the number you are seeing in government securities, we are confident we will reverse it. Our business model as Family Bank is lending to the private sector,” he added.