Kenya: Absa Kenya Increases Government Securities Holdings as Lending Growth Slows

Absa Bank Kenya has increased its investment in government securities as subdued loan demand pushed banks to allocate more capital to state debt instruments, while rising digital transaction income helped sustain profitability.

According to the bank’s 2025 investor presentation, holdings in government securities rose by 19% to KES 115.1 billion ($890 million) for the year ended December 2025. In contrast, customer lending recorded only marginal growth, rising 1% to KES 312.2 billion ($2.41 billion).

Despite slower credit expansion, the bank’s profit after tax grew by 10% to KES 22.9 billion ($177 million).

The performance highlights a broader trend among lenders in Kenya, where banks are increasingly relying on government securities and fee-based services as private sector borrowing remains weak.

Net interest income — largely generated from loans — declined by 6% to KES 43.3 billion ($335 million). However, non-interest income increased by 12% to KES 18.1 billion ($140 million), supported by payments, trading activities, and other transaction-based services.

Digital banking has played a significant role in boosting these earnings. The bank reported that approximately 94% of its transactions are now processed through alternative channels, including mobile and online banking platforms.

As part of its digital expansion strategy, Absa Kenya has continued to grow its mobile lending services through the Timizaplatform while increasing merchant payment activity through solutions such as Lipa na Absa.

These initiatives have contributed to the steady rise in non-funded income, which accounted for 29% of the bank’s total income in 2025, compared with 26% in the previous year.

The lender also reported an improvement in asset quality. Loan impairment charges declined by 32% to KES 6.2 billion ($48 million), reflecting reduced credit losses during the period.

Lower provisions for bad loans, combined with stronger fee-based income, helped offset pressure on interest earnings and supported the bank’s overall financial performance.

Across Kenya’s banking sector, lenders are navigating a period of cautious borrowing activity as households face reduced purchasing power and businesses adopt more conservative financing strategies.

In this environment, government securities have become an increasingly attractive investment option for banks, offering stable returns and lower risk compared with private-sector lending, while digital banking services continue to drive transaction-based revenue growth.