Interest income, foreign exchange trade: Where banks cut earnings in 2025

As cheaper credit reshaped the market in 2025, banks had to navigate thinner margins and shifting income streams.

The single-digit interest regime by the Central Bank of Kenya (CBK) that dominated the better part of 2025 cut billions in loan income and advances for local banks, even though the institutions still made profits for the period.

Much of these profits, however, were as a result of the banks also paying less on deposits held with them, which evened out the drop in income made through lending.

But as some banks increased their lending, others slowed down in the period, perhaps in view of the changes in the market that were working against them.

Equity Bank Kenya is one such bank whose net loans and advances to customers reduced to Sh409.1 billion in 2025 compared to Sh422.3 billion posted in 2024.

In 2025, the Central Bank Rate (CBR) dropped from 11.25 per cent at the beginning of the year and closed the period at nine per cent.

In February 2025, the Monetary Policy Committee (MPC), chaired by CBK Governor Kamau Thugge, reduced the CBR by 50 basis points from 11.25 per cent to 10.75 per cent. Later in April, this dropped further by 75 basis points to 10 per cent and by another 25 basis points in June to reach 9.75 per cent. In August, the MPC slashed another 25 basis points to 9.50 per cent and a further 25 basis points in October to 9.25 per cent.

By December, the base lending rate, which now stands at 8.75 per cent, had been reduced by 3.25 per cent over the 12 months.

This consistent drop and the implementation of the Risk-Based Credit Pricing Model (RBCPM) that took effect at the tail end of last year, which favours individuals with good credit scores, were expected to have an effect on banks’ financials.

Additionally, CBK has also implemented the Kenya Shilling Overnight Interbank Average (Kesonia), which is also expected to have an effect on the cost of credit as it presents itself as an option to the CBR.

These changes saw Equity Bank Kenya report an interest on income of Sh58.2 billion for the year that ended on December 2025, a drop from Sh60.8 billion in 2024. Total interest income stood at Sh104.6 billion compared to Sh107.4 billion in 2024.

However, the bank’s profit after tax rose to Sh39.2 billion from Sh24.1 billion, mainly because its subsidiary, Equity Group Holdings, paid less in interest expenses, which dropped from Sh50.9 billion to Sh32.1 billion.

Group Managing Director and Chief Executive James Mwangi said the bank’s profitability is not driven by higher margins but efficiency.

In the period, net interest margins across the subsidiaries in the region averaged a single digit, with Kenya standing at 8.3 per cent in 2025 compared to 6.6 per cent in 2024.

“We do not perform well because of higher margins. That is not what drives the organisation. The margins are all single digits, so it is not about pricing but efficiency,” he said.

The drop in loans and advances by Equity Bank Kenya is partly also explained by how the bank is re-examining its loan book, considering the 16.3 per cent non-performing loans (NPL) ratio recorded in 2025.

Additionally, the stable shilling that exchanged at a flat rate of Sh129 to the US dollar denied banks such as Equity the windfall in foreign exchange commissions they previously enjoyed in 2023 and 2024 when the price was inching closer to Sh170.

In 2025, the bank made Sh2.6 billion in foreign exchange income from Sh4 billion in 2024.

Stanbic Bank Kenya, on the other hand, made Sh3 billion less in foreign exchange trading income to record Sh3.9 billion in the period. The bank also saw a drop in interest income from loans and advances in the period despite increasing credit advancement.

From the bank’s financials, loans and advances to customers in 2025 increased to Sh270 billion compared to Sh230.3 billion in 2024.

This is due to interest income from loans and advances dropping to Sh26.9 billion in the same period from Sh35.9 billion.

Joshua Oigara, the regional chief executive, pointed out how the corridor between MPC decisions and market adoption has thinned because of the policies implemented by CBK.

Previously, banks have been accused of taking their sweet time to transmit the MPC changes, especially when not in their favour, which would deny customers access to more affordable credit.

This explains the RBCPM and Kesonia as implemented by the CBK.

“That gap is disappearing. If you look at the transmission model and the corridor for CBR, and look at the trend from August 2024, there is a material convergence of CBR, Kesonia, and to some extent the T-Bills rate,” said Oigara.

Stanbic Bank Kenya made a profit after tax of Sh13.5 billion, a slight drop from Sh13.6 billion in 2024. During this period, the bank’s interest expenses dropped to Sh14.7 billion from Sh25.4 billion.

The Co-operative Bank of Kenya, however, emerged as an outlier in the period as it posted an increase in interest income from loans and advances, as well as an upsurge in the amount of credit advanced in the season.

The size of loans and advances by the bank increased in 2025 to Sh393.5 billion compared to Sh356.2 billion in 2024. Interest income from loans and advances for the bank consequently increased to Sh56.8 billion from Sh53.8 billion.

However, on foreign exchange trading, the suit followed as it booked a loss of Sh902.6 million to record Sh3.2 billion as income.

Interest expenses in the period dropped to Sh27.7 billion from Sh32.5 billion, which boosted the bank’s profit after tax that stood at Sh26.4 billion, an improvement of Sh3.5 billion.

Another outlier was KCB Kenya as it increased its loans and advances to Sh866.9 billion from Sh736.6 billion to realise an upsurge in its interest income from the same that stood at Sh109.2 billion in the period from Sh102.6 billion in 2024.

The bank’s foreign exchange trading income was, however, halved to Sh5.9 billion from Sh10.3 billion in 2024. Total interest expenses, on the other hand, dropped to Sh44.7 billion from Sh56.8 billion, which explains the bank’s profit after tax of Sh48.5 billion compared to Sh45.0 billion in 2024.

NCBA Bank, which recorded a profit after tax of Sh19.3 billion from Sh17.8 billion, saw its foreign exchange trading income drop to Sh4.5 billion from Sh5.4 billion.

While net loans and advances to customers did go up to Sh279.0 billion from Sh269.1 billion, interest income from the same dropped to Sh35.7 billion from Sh42.0 billion.

Total interest income then dropped to Sh60.2 billion from Sh667.8 billion. Conversely, interest expense dropped to Sh20.7 billion from Sh37.8 billion.