Kenyan banks are now relying more on secured borrowing to manage their short-term funding needs, as the value of secured interbank lending doubled in just one month. According to official market data, secured interbank transactions in Kenya rose sharply to KSh69.6 billion in April 2025 from KSh34.8 billion recorded in March. This significant jump shows that commercial banks are adjusting their liquidity strategies due to changing market conditions.
In secured interbank lending, banks borrow from one another using collateral—mainly government securities like treasury bills and bonds. This method is considered safer because it reduces the risk of default, unlike unsecured borrowing. By pledging these government-backed securities, banks can access money at lower interest rates, which helps them meet daily liquidity demands more easily.
The move is coming at a time when Kenya’s financial environment is becoming more cautious, as inflation concerns and global economic uncertainties continue to affect emerging markets. Many financial analysts believe that this switch to secured lending is a sign that banks are trying to avoid unnecessary risks while still staying liquid enough to serve their customers.
The Central Bank of Kenya (CBK), led by Governor Kamau Thugge, has also been encouraging banks to adopt better liquidity and risk management strategies. Under his leadership, the CBK has introduced several policies aimed at improving transparency, stability, and efficiency in the banking sector. The increase in secured lending is likely a result of these reforms, as banks are now more mindful of CBK’s guidelines.
Experts in Nairobi say the growing preference for secured borrowing could help improve the overall functioning of the interbank market. Secured transactions are seen as more transparent because they involve registered collateral and lower the chances of default. However, they also noted that if this trend continues for too long, it could limit the amount of collateral available for other financial activities. This might reduce the ability of banks to invest in long-term ventures or respond quickly to emergency funding needs.
Financial consultant James Wanjohi, explained that while the current increase is not alarming, banks and regulators must watch closely to avoid over-dependence on government securities for short-term borrowing. He also noted that if all banks rush into secured borrowing, it might create competition for available collateral, which could drive up the cost of accessing funds.
The doubling of secured interbank lending shows how flexible and reactive Kenya’s financial system has become. It also reflects how banks are preparing themselves for both local and global financial shocks. With the rising interest in secured lending, it is expected that this may become a permanent feature of Kenya’s money market system, especially if economic pressures persist.
As the market adjusts, banks, regulators, and investors will be watching carefully to see how this trend develops and what it means for financial stability in the country.
