The Central Bank of Kenya (CBK) faces a growing policy dilemma as a surge in bad loans across key sectors threatens to undermine its efforts to spur lending and boost economic activity through lower interest rates.

Data and insights from the banking regulator released on Tuesday showed that non-performing loans (NPLs) have climbed to a two-decade high, hitting the Sh700 billion mark and reaching 17.2 per cent of gross loans in February 2025, up from 16.4 per cent in December 2024.