Kenyans will pay local financial institutions Sh500 billion in the 2026/27 financial year to cater for interest on loans totaling Sh3.67 trillion, on the back of growing public debt.
The payouts to local financial institutions will constitute 40 per cent of all interest payments, which will hit Sh1.25 trillion in the year to June 2027 as per National Treasury disclosures.
In total, the National Treasury will pay Sh986.7 billion to local lenders and Sh267.5 billion to external lenders.
The National Treasury in Nairobi.
Photo credit: File I Nation Media Group
An analysis of current domestic debt holdings shows that major commercial banks will earn hundreds of billions from the interest payments, with Kenya’s top five lenders holding about Sh1.3 trillion in treasury bonds and bills by March this year.
Banks alone will pocket Sh341.8 billion in the 2026/27 financial year, in interest on money lent to the government.
The heavy burden of the domestic interest reflects high interest rates on the loans, as well as their huge share of Kenya’s public debt.
About 56.3 per cent (Sh7.3 trillion) of Kenya’s Sh13 trillion public debt by the end of June was domestic debt, with debt from external lenders constituting 43.7 per cent (Sh5.68 trillion).
By June 2026, local banks held Sh2.5 trillion in treasury bills and bonds, making them the largest lender to the government, followed by other financial institutions, which had lent the government Sh1.13 trillion.
Holding half of the Sh7.3 trillion domestic debt by the end of June, this sets the two categories of lenders as the biggest beneficiaries of interest payments scheduled for the current fiscal year.
Big banks have lent hundreds of billions of shillings to the government, with select five tier one banks holding Sh1.29 trillion in treasury bills and bonds by March, half of all lending by commercial banks to the government.
Equity Group held the highest amount (Sh353.7 billion), followed by KCB Group (Sh324.6 billion), Co-operative (Sh272.9 billion), NCBA (Sh216.6 billion) and Absa Group (Sh128.5 billion).
In an explainer for the 2026/27 budget, the Parliamentary Budget Office (PBO) reckons that during the year, interest on public debt will constitute about 42 per cent of the Sh2.99 trillion the government projects to collect from taxes and non-tax revenues.
“(Consolidated Fund Service (CFS) expenditures show the heavy financial burden of public debt, with Sh1.25 trillion allocated for debt servicing, of which Sh986.73 billion is for internal debt, and Sh267.51 billion is for external debt,” says Dr Martin Masinde, the director of PBO.
Besides banks and other financial institutions, both pension funds and insurance companies are expected to pocket over Sh130 billion each from interest payments; government agencies will earn about Sh68 billion and normal Kenyan households that are holding treasury bills and bonds will earn Sh60 billion.
This is based on a breakdown of the amount of treasury bills and bonds the different categories of domestic lenders held by the end of June, with a relative comparison to budgeted payments for the current fiscal year.
By end of June 2026, the stock of public debt owed to pension funds amounted to Sh1.028 trillion, insurance firms were owed Sh1 trillion, government agencies were owed Sh506 billion and households Sh451 billion.
The interest payments on domestic debt for the current financial year mark a 14 per cent increase from the Sh862.65 billion paid during the year to June 2026, meaning that expenses are rising by Sh124 billion.
Overall, Treasury bond holders will earn the highest interest, Sh873.25 billion (88.5 per cent) of all the domestic interest to be paid in the year to June 2027.
“Interest payments on treasury bonds amount to Sh873.25 billion, interest payments for treasury bills amount to Sh98.89 billion, interest payments for government overdraft facility amount to Sh11.18 billion, CBK Commission amounts to Sh3 billion and interest payment of pre-1997 government overdraft debt amounts to Sh408.86 million,” the PBO says.
The PBO warns that should the government opt to pay the interest and all debts maturing by June 2027, it could end up spending over 85 per cent of the Sh2.99 trillion revenues on CFS alone.
The government has often resorted to rolling over maturing debts to reduce the debt service burden, with budgets focusing on servicing interest.
“Payments of redemptions on public debt for the FY 2026/27 amounts to Sh1.06 trillion. Therefore, if the government opts to liquidate all its maturing loans instead of rollover, the CFS expenditure obligations will amount to Sh2.56 trillion,” the PBO says.
Much of the maturing public debt during the current fiscal year constitutes internal debts (Sh648.78 billion), while external debts are Sh412.87 billion.
Treasury’s latest public debt bulletin shows that Kenya’s public debt stock stood at Sh13.013 trillion by the end of June 2026, which was 68.5 per cent of the Gross Domestic Product (GDP).
In June alone, domestic debt grew by Sh89.4 billion while the external debt increased by Sh27.4 billion.
“The stock of Treasury Bills increased by Sh11.24 billion from Sh1,106.91 billion as at end May 2026 to Sh1,118.15 billion as at end June 2026, the stock of Treasury Bonds increased by Sh76.70 billion from Sh5,944.45 billion to Sh6021.15 billion over the same period,” Treasury stated.
Of the Sh7.3 trillion domestic debt by end of June, Treasury bonds accounted for Sh6 trillion and Treasury bills Sh1.12 trillion, the two major components.
On the external debt front, multilateral lenders such as the World Bank, the African Development Bank and the International Monetary Fund (IMF) have lent to Kenya the most (Sh3.1 trillion), followed by commercial lenders at Sh1.5 trillion, and bilateral lenders (Sh973 billion).
