In response to a directive from the Central Bank of Kenya (CBK), commercial banks in Kenya are swiftly reducing lending rates to avoid daily fines for non-compliance. The CBK is pressuring banks to align their rates with recent Central Bank rate cuts, aiming to lower the cost of credit for businesses and stimulate economic activity.
Banks that fail to adjust their rates risk fines of up to KES 20 million or three times the monetary gain, along with daily penalties for violations. Leading banks like KCB Group, Equity Group, Cooperative Bank, I&M, and DTB have already lowered interest rates by one to four percentage points.
Equity Bank stands out for consistently reducing borrowing rates in response to the CBK’s monetary policy adjustments, demonstrating compliance with the regulator’s directives. The CBK is closely monitoring banks to ensure that loan pricing reflects their risk-based models and the declining central bank rate, with additional banks expected to follow suit to avoid financial penalties.
Despite multiple rate cuts by the CBK, the disparity between the central bank rate and lending rates has widened, impacting private sector credit growth. By urging banks to lower borrowing costs, the CBK aims to support the economy and enhance the transmission of monetary policy changes to customers.
Since August 2024, the CBK has reduced the benchmark rate by 2.25 basis points to 10.75%, with the most recent adjustment occurring on February 5, 2025. The regulator continues to emphasize the importance of banks aligning their lending rates with the evolving monetary policy landscape to benefit the economy as a whole.