In a twist that's squeezing bank profits, Kenya's shilling has done something unusual—it's stayed put. After appreciating a whopping 17.4% in 2024, the currency has barely budged in 2025, trading around KSh 129.30 per USD through early months and closing at KShs 129.6 by late February. Banks aren't exactly celebrating.
Stability sounds great on paper. But for banks that have grown fat on forex volatility—trading currencies, hedging positions, profiting from swings—a steady shilling is a problem. Those forex gains that padded balance sheets when the shilling bounced around? Gone. The steady exchange rate has discouraged speculative forex positions entirely. Banks are watching their forex margins compress while the Central Bank of Kenya sits on USD 7.2 billion in reserves, matching importer demand and smoothing out any bumps.
The CBK even recorded losses from foreign-exchange valuation amid its stability efforts. That's the price of keeping things calm. The Central Bank's intervention mechanisms—including reserve deployment and strategic dollar sales—have effectively dampened the currency swings that banks once exploited for profit. Just as South Africa's SARB uses monetary policy decisions to influence the rand's trajectory, the CBK's active management has fundamentally altered the forex landscape for Kenyan banks. Meanwhile, banks face another headache: nine consecutive rate cuts have dragged the Central Bank Rate from 13.00% in July 2024 down to 9% by December 2025. The cumulative 225 basis points of easing was meant to stimulate credit and boost business activity.
Equity Group and KCB now price new shilling loans using the 9% CBR plus customer premiums, a complete reversal from their earlier opposition to CBR benchmarking. Commercial lending rates still hover between 13-18% for SMEs, but the direction is clear. Lower rates mean tighter spreads.
The shilling's strength did reduce debt service costs as forex reserves built up, but that hardly compensates for vanishing forex trading profits. By late November, slight depreciation crept in at KSh 129.96 per USD as dollar demand from importers increased. Analysts expect the shilling to trade between KShs 134.4 and 140.5 by year-end, implying a 4.6% depreciation bias.
Still, inflation averaged 5-6% in 2025, and global conflicts keep pressuring fuel and food imports. Dollar demand from manufacturers outpaced inflows. Unlike institutional investors who can shift capital across global markets seeking volatility, Kenyan banks are stuck navigating a domestic landscape where their primary profit engine has stalled. Banks will need to find profits elsewhere because the forex fortune train has slowed considerably.
