Equity Group significantly reduced interest rates on customer deposits to 3.3 percent in 2025 from 8 percent the previous year, leveraging lower funding costs to widen margins and boost profitability during the period.
Disclosures in the bank’s 2025 annual report show that term deposits grew by 4.6 percent, or Sh18.3 billion, to Sh416.05 billion, while non-interest and low-interest deposits rose by 3.5 percent, or Sh35.5 billion, to Sh1.04 trillion.
Banks generally benefited from a decline in funding costs last year as interest rates fell in line with cuts to the Central Bank Rate, which signals the risk-free floor of the cost of money in the economy.
As a result, Equity’s net interest income rose by 16.8 percent to Sh126.94 billion. Interest expense on customer deposits fell by 26.4 percent to Sh35.7 billion, helping the lender lower its overall cost of funding by 24.2 percent to Sh46.7 billion.
The bank reported a 54.6 percent increase in net profit to Sh71.9 billion in 2025.
‘The defensive strategy in growing net interest income was on how to reduce the cost of funding. The topline was not about growth; it was about efficiency. So we reduced our cost of funding by 24 percent,’ said Equity Group chief executive officer James Mwangi when releasing the bank’s financials last month.
Customer deposits
Term deposit accounts typically offer competitive fixed interest rates for a specified period, calculated daily and paid at maturity. Banks use such accounts to attract sticky deposits that can support longer-term lending.
Savings accounts, which allow customers to set aside money regularly, also pay interest but at relatively lower rates compared with term deposits.
Latest Central Bank of Kenya data shows that, at the end of February 2026, the average term deposit rate in the banking sector stood at 6.82 percent, down from 10.45 percent in December 2024. The average savings rate declined to 2.41 percent from 4.25 percent over the same period.
Non-interest-earning accounts include current accounts, whose funds can be accessed on demand but are subject to transaction and monthly maintenance charges. Banks also offer transactional accounts that can be accessed without restrictions or withdrawal limits.
Equity says in its 2025 annual report that retail customers grew their term deposits by a quarter to Sh116.9 billion from Sh92.4 billion in 2024. Their current, savings and transactional deposits, meanwhile, rose from Sh456.9 billion in 2024 to Sh515.3 billion last year.
Corporate customers, on the other hand, reduced term deposits from Sh305.4 billion to Sh299.2 billion, while also cutting holdings in current and savings accounts from Sh546.7 billion to Sh523.7 billion.
The lender’s total customer deposits grew by 3.8 percent to Sh1.45 trillion over the year.
Overall, tier-one banks increased their combined customer deposits by Sh553 billion to Sh6.18 trillion. Interest expense on these deposits fell by 24 percent to Sh201.83 billion, underscoring the impact of declining interest rates on their books.
The banks’ average spread – the difference between lending and deposit rates – was 7.51 percent in December 2025, compared with 6.44 percent a year earlier.
Last year marked a shift from 2024, when banks had raised deposit returns to a 26-year high of 11.48 percent to attract customers away from government securities, where bond and Treasury bill rates had risen above 17 percent.