Commercial banks are betting on traders and builders as the country’s drivers of economic expansion, channelling more than half of fresh credit into commerce and construction businesses.

Trade, building and construction sectors accounted for Sh195.5 billion, or 54.22 percent, of new net credit in the year to May 2026, data by the Central Bank of Kenya shows, while manufacturers continued repaying loans.

This came in a period when bank lending to the private sector rose by Sh360.6 billion compared with Sh75.2 billion the year before.

Trade emerged as the biggest beneficiary after absorbing Sh153.5 billion in additional credit, or 42.6 percent of all new private-sector lending created during the year, signaling where lenders expect business activity and economic growth to strengthen.

The shift in lending suggests banks expect Kenya’s economy to be powered by commerce, retail activity, infrastructure projects and agricultural production rather than factory expansion or logistics.

“Improved uptake of credit across sectors is expected to support growth, particularly in trade, building and construction, agriculture and consumer durables,” CBK Governor Kamau Thugge said after the June Monetary Policy Committee meeting.

Construction, trade and agriculture, Dr Thugge said, were recording increases in bank lending, reflecting stronger demand for credit in those sectors.

Building and construction received Sh42 billion in additional credit in the year to May, agriculture Sh46.6 billion and consumer durables Sh42.1 billion, reflecting a pattern that favours sectors linked to domestic demand, government projects and household spending.

Read: Banks shift billions from logistics to construction

The lenders made these bets after more than a year of gradual monetary easing in borrowing costs, with the weighted average lending rate falling to 14.5 percent in May from a peak of 17.22 percent in November 2024.

The lending rates, however, remained relatively elevated, sitting above the roughly 12 percent levels in early 2022.

That means banks expanded credit before the cost of money returned to the lower levels that prevailed before the 2022–2023 global supply-chain disruptions triggered a wave of central-bank interest-rate hikes, suggesting lenders are selectively directing funds toward sectors they believed would generate stronger growth and more reliable repayments.

Manufacturing was one of only three major sectors where credit shrank, falling Sh38.6 billion to Sh547.6 billion despite overall private-sector lending expanding by 9.3 percent.

Transport and communications lending declined by Sh28.9 billion, while real estate remained largely flat, indicating lenders remain cautious about sectors exposed to high operating costs and slower investment cycles.

The contrast highlights a growing divide inside the country’s productive economy, with banks favouring businesses that generate cash quickly over capital-intensive industries requiring longer investment horizons.

The CBK governor said the manufacturing contraction resulted from net loan repayments in April and May, meaning existing borrowers paid more debt than they borrowed during those months.

“In the case of the manufacturing sector, there were net loan repayments in both April and May, which explains the contraction in credit in both of those months,” Dr Thugge said.

“It is expected that this will recover in the coming months.”

Even with that explanation, the bank lending figures show financiers committed substantially more capital to commerce than to manufacturing, underscoring where lenders currently see stronger opportunities and lower risk.

Trade is often considered one of the fastest-moving sectors for bank lending because businesses require working capital to finance inventories, imports, distribution networks and day-to-day commercial activity.

The increase in lending to traders suggests banks expect consumer demand and business transactions to remain resilient despite persistent cost pressures across the economy in the wake of unresolved Israel-US war with Iran.

Construction represents the second major pillar of that optimism, according to the industry data.

Credit to the sector jumped 26.2 percent, reflecting expectations that affordable housing projects, infrastructure works, settlement of pending government bills and public-private partnerships will sustain building activity.

The resurgence follows the Ruto administration’s decision to restart 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.

Dr Thugge says the industrial sector is expected to remain resilient largely because of construction activity and government-backed investment programmes.

Agriculture delivered one of the strongest performances, with credit rising 32 percent to Sh192 billion during the year to May.

Banks have traditionally been cautious about agricultural lending because of weather-related risks, making the latest increase particularly significant.

Dr Thugge attributes the improved outlook to favourable weather conditions which are expected to support agricultural growth through 2026 and 2027.

That combination of stronger farm lending and higher trade financing points to an economy increasingly anchored in food production, distribution and domestic commerce.

Consumer durables lending also expanded, suggesting banks remain willing to finance household purchases despite elevated living costs.

Together with a 4.9 percent rise to Sh591.6 billion in lending to private households, the data indicates that domestic consumption remains a key component of the credit recovery.

On the other hand, manufacturing and transport remain vulnerable to higher electricity and fuel costs, expensive imported inputs and weaker industrial investment, pressures that continue to weigh on borrowing demand and repayment capacity.

Dr Thugge warned in June that higher energy prices were expected to affect manufacturing, transport and storage, accommodation and food services, and wholesale and retail trade.

Banking industry executives say factories are still struggling to regain momentum despite policy efforts aimed at boosting production.

“Manufacturing has never really fully recovered since Covid days. There’s policy work that is being done to support it, but there is still a lot of work to be done there,” KCB Group Chief Financial Officer Lawrence Kimathi said in March, in reference to a sector that accounted for 14.8 percent of the lender’s gross loan book last year.

The Kenya Association of Manufacturers’ 2026 Manufacturing Priority Agenda identifies multiple pressures holding back industrial expansion, including heavy taxation, high electricity costs, weak global competitiveness and cash-flow constraints.

Manufacturers also face expensive imported raw materials, levies such as the Import Declaration Fee and Railway Development Levy, delayed VAT refunds, and competition from counterfeit and contraband goods.

Those structural challenges partly help explain why factory borrowing remains weak even as lending rates have eased and banks expand credit to faster-growing sectors.

The latest figures, therefore, point to a recovery in private sector credit that is uneven rather than broad-based.

The data shows banks are not withdrawing from the economy, but are reallocating capital toward activities they believe will expand faster and generate stronger cash flows.

→ cmunda@ke.nationmedia.com

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