Equity, Co-op Banks owe Sh457million in legacy government loan arrears
Equity Bank and Co-operative Bank of Kenya are among top-tier lenders still grappling with legacy government on-lending arrears, with a combined outstanding balance of Sh457million as of June 2025.
The debt stems from historical government programmes where the Treasury advanced funds to banks to lend to targeted groups, notably smallholder farmers, across sectors such as cotton, irrigation, pyrethrum, and dairy.
Treasury’s latest debt disclosures indicate that the government had disbursed a total of Sh784 million to the two banks over several years, but by the close of the last financial year, only Sh327 million had been recovered.
Co-operative Bank alone owes Sh267million out of Sh339million received, while Equity Bank has an outstanding balance of Sh190million from the Sh445million channelled through its network.
A senior bank official explained that these exposures largely relate to programmes dating back decades.
“The arrears stem from old government funds aimed at supporting farmers,” the official said.
“Banks were responsible for collecting repayments and remitting them to Treasury, but repayment rates were poor, and some loans have been outstanding since the late 1980s.”
The historical nature of these loans means that the balances often linger long after the original programmes collapsed, periodically resurfacing in fiscal disclosures with little connection to current lending operations.
In contrast, similar exposures previously held by Faulu Microfinance Bank and Kenya Women Microfinance Bank (KWFT) had either been fully repaid or written off by June 2023, clearing their books of legacy arrears totaling Sh477million.
While the Sh457million owed by Equity and Co-op may appear modest in absolute terms, it forms part of a far larger fiscal challenge. Treasury’s Annual Debt Management Report shows that the cumulative stock of government loans—both on-lent and direct—stood at Sh1.05 trillion by end-June 2025. A significant share of this, Sh547.38 billion, is owed by Kenya Railways Corporation alone, accounting for 52% of the total. During the year, repayments across the portfolio amounted to just Sh76.93 billion, representing only 7.32% of the total stock.
The persistence of these arrears underscores broader weaknesses in government on-lending programmes. Poor repayment rates, limited follow-up on historical loans, and minimal enforcement mechanisms have allowed these obligations to accumulate over decades. In the case of Equity and Co-operative Bank, the issue is compounded by the age of the original loans, which were disbursed long before modern banking systems and digital tracking made loan recovery more efficient.
Experts note that while legacy arrears may seem small relative to Kenya’s overall public debt, they highlight the need for stronger governance, clear repayment frameworks, and periodic audits of on-lent funds to prevent recurring fiscal surprises. Without improved oversight, the government risks continuing to carry dormant liabilities that strain public accounts and obscure the true state of Treasury finances.
