Commercial banks placed their biggest bets on construction projects while quietly pulling billions of shillings out of the logistics and communications sectors in the year to April, an indication of the lenders’ expected economic expansion points.
On average, banks redirected credit toward sectors they consider less risky and more profitable than spreading it evenly across the economy as private sector lending recovered from last year’s contraction, the latest Central Bank of Kenya (CBK) data show.
Outstanding loans to the private sector rose 6.3 percent, or Sh386.3 billion, to Sh6.48 trillion in April, reversing a 1.3 percent decline a year earlier after the CBK began cutting interest rates.
The recovery in lending followed easing in borrowing costs, which has seen the weighted average lending rate charged by commercial banks drop to 14.38 percent in June, from a recent 17.22 percent peak in November 2024.
The latest round of easing has ended nearly three years of rising borrowing costs that had pushed lending rates from 12.12 percent at the beginning of 2022, encouraging businesses to revive expansion plans postponed during the high-interest-rate cycle.
‘It [2025] was a defensive year, it was not a growth year. It was about optimisation,’ Equity Bank Group chief executive James Mwangi said in March.
‘Loans have now started to pick and going forward it is offensive, it is growth of loan book.’
The banks, however, remain selective, choosing where to deploy capital instead of reopening credit taps across the board.
The numbers show loans to the building and construction sector grew at the fastest pace in the period, jumping 32.1 percent, or Sh48.7 billion, to Sh200.6 billion.
Credit to transport and communications businesses, on the other hand, fell by the biggest rate of 9.6 percent, or Sh34 billion, to Sh320.4 billion, extending a second straight annual decline.
The shift suggests lenders view construction as offering stronger returns and lower risks than logistics businesses, as economic activity gradually improves across both sectors.
The resurgence in credit to the construction sector comes after President William Ruto’s administration restarted hundreds of road projects that had stalled under an estimated Sh650 billion backlog of unpaid bills owed to local and international contractors.
More than 500 road projects resumed from 2025 after the Roads ministry negotiated a return-to-work arrangement backed by an initial Sh123 billion payment, restoring contractors’ cash flows and renewing demand for bank financing.
Banks also appear to be responding to a recovery in construction activity.
Kenya National Bureau of Statistics data shows the sector expanded 6.6 percent in the first quarter, up from 4.5 percent a year earlier, driven by a 17.9 percent increase in cement consumption alongside higher imports of bitumen, iron and steel.
The building and construction category captures lending to real estate developers, civil engineering contractors and construction companies, making it a gauge of investment appetite in housing and infrastructure.
On the other hand, the transport and communications credit category includes road, rail, air and pipeline operators, logistics companies, courier services, telecommunications firms, broadcasters and information technology businesses.
The reduction in bank lending to the sector came at the time activity continued to improve. The KNBS data shows transport and storage output grew 3.6 percent in the first quarter, matching last year’s pace.
The data shows cargo handled through the Port of Mombasa increased, diesel consumption rose nearly 10 percent, while Standard Gauge Railway freight and passenger traffic both recorded double-digit growth.
The disconnect suggests lenders remain cautious about extending fresh credit to logistics and communications companies despite stronger operating indicators, pointing to concerns over profitability, leverage or future investment demand rather than current activity.
Besides transport and communications, credit to the manufacturing sector also remained under pressure.
Outstanding loans to factories fell 3.4 percent to Sh573.5 billion in the year through April, marking the second consecutive annual decline and suggesting industrial firms remain hesitant to undertake major expansion despite easing financing costs.
Besides construction, other sectors that experienced credit growth were agriculture, which grew 23.5 percent to Sh190.2 billion, finance and insurance by 20.7 percent to Sh178.7 billion, and wholesale and retail trade by 9.3 percent to Sh749.6 billion. Credit to private households also recovered, rising 6.9 percent to Sh596.6 billion after contracting 1.6 percent a year earlier.