Commercial banks are holding Sh2.6 trillion in excess cash, indicating that workers and businesses are preferring passive income over investing in enterprises that would generate jobs.
New data from the Central Bank of Kenya (CBK) shows that banks’ liquidity ratio rose to a new all-time high of 61.7 percent in February 2026 or Sh3.85 trillion, from 58.3 percent in February 2025 and 52.1 percent at the beginning of 2024.
Banks are required by law to hold at least 20 percent of their deposit liabilities in cash or near-cash assets, which allows them to meet short-term demands, including customer withdrawals, without distress.
This minimum statutory cash holding translates to Sh1.25 trillion at the current deposit levels, leaving lenders with excess cash of Sh2.6 trillion.
This comes amid struggles to grow lending to the private sector in the wake of flat demand for new loans that would allow businesses to expand the factory floor and hire more.
The shift to passive investing has seen the volume of cash stashed in unit trusts rise to a record high of Sh756.2 billion as at December 2025, from Sh104 billion five years earlier.
Ideally, such capital would generate thousands of jobs if invested in labour-intensive sectors such as agriculture, trade or manufacturing. The small share of moneyed accounts offers a sneak peek into Kenya’s growing income inequality, where wealth is concentrated in the hands of a small segment of the population.
Kenya’s economy has grown on average by 5.0 percent annually over the past decade, but the benefits have not been equally distributed, and the gap between the rich and the poor is rising, analysts say.
The number of super-rich in Kenya is among the fastest-growing in Africa, yet the economic benefits have not trickled down to the majority of the citizens quick enough.
The liquidity ratio captures the amount of cash or near-cash assets held by banks in comparison to their short-term deposits, and it is a good indicator of how efficiently a bank is deploying customer deposits to make loans.
A bank’s liquid assets include Treasury bills and short-term bonds, cash in tills, deposits with other local and foreign banks and repurchase agreement facilities. While their pile of cash rose to a record high, growth in banks’ lending to the private sector remained in the single digits-at 8.1 percent in the 12 months to Sh4.46 trillion March – despite the recent fall in interest rates.
The CBK considers credit growth of between 12 and 15 percent to be ideal for optimum growth of the economy and business expansion for jobs creation. Lenders told the CBK in a periodic survey that a majority of economic sectors had not recorded an increase in demand of credit in the last quarter of 2025 amid stringent borrowing conditions in the wake of a surge in bad loans.
Non-performing loans ratio rose to 15.6 percent in March from 15.4 percent in December 2025.
‘In the fourth quarter of 2025, the perceived demand for credit remained unchanged in nine economic sectors, (including) mining and quarrying, agriculture, manufacturing, tourism, restaurant and hotels, transport and energy. It increased in trade, and personal and household sectors,’ said the CBK.
In the absence of matching growth in lending to offtake their growing deposits pile, banks have been forced to park their excess liquidity in government securities, which also represent a low-risk investment option at a time of elevated risk of non-performing loans.
They held Sh2.57 trillion worth of government securities at the end of March, making them the biggest domestic lender to the State ahead of pension funds (Sh978.7 billion), insurance firms (Sh950.7 billion), government agencies (Sh489 billion) and households (Sh440.4 billion).
To prevent the excess liquidity in the banking sector from affecting the shilling’s exchange rate, the CBK has been mopping up an average of Sh60 billion every day from the market this year. The CBK utilises several open market operation tools to regulate the liquidity in the market, including the repos and reverse repos, and term auction deposits (TADS).
Repos entail a sale of government securities held by the CBK to banks, which effectively reduces the level of deposits the lenders hold with the regulator, thus cutting their ability to lend new loans onto the economy. The CBK then repurchases the securities after three to seven days.
Reverse repos work the other way, injecting liquidity into the banking system by allowing banks to borrow from the CBK using their holdings of bonds as collateral. Term auction deposits work in the same way as repos, but without the use of a collateral.
The liquid money market has also seen higher volumes offered in recent Treasury bill auctions, a segment dominated by banks.
Fund managers have also contributed to the growing deposits as they place part of their Sh756 billion assets under management (AUM) in fixed deposit accounts.
The unit trusts are required by law to invest their money market funds in short-term government securities and deposit accounts. Their bank deposits and government paper holdings amounted to Sh588 billion in the period, equivalent to 86 percent of the total AUM.
Shilling liquidity was further enhanced over the past year by the CBK’s dollar buying activity, which effectively amounted to an injection of shillings into the banking sector, necessitating the heightened mop-ups to keep the market in balance.