Kenyan banks continue to flex their financial muscle, showing defiance against the Central Bank of Kenya (CBK) directive to lower lending rates, defeating attempts to make credit more affordable for the private sector.

Tier-one banks, in particular, have only marginally reduced their rates despite CBK cutting its benchmark rate three consecutive times since October last year, currently standing at 10.75 per cent.

Additionally, the Cash Reserve Ratio (CRR) was reduced by one basis point to 3.25 per cent, a move aimed at increasing banks’ liquidity and encouraging them to lower lending rates.

“With these measures, banks are expected to take the necessary steps to lower their lending rates further to stimulate growth in credit to the private sector and support economic activity,” CBK Governor Kamau Thugge stated during a recent Monetary Policy Committee (MPC) meeting. However, the reduction remains marginal—still hovering more than 3 basis points above the Central Bank Rate (CBR)—leaving many borrowers unable to feel the impact of the directive.

As of February 5, only Citibank, Stanbic Bank, Standard Chartered, Absa, and Victoria Commercial Bank had met the Central Bank of Kenya’s (CBK) 2.25 per cent rate threshold.

Affordable credit

While other Kenyan banks have complied with CBK’s directive to lower lending rates, most have made only marginal reductions. As a result, access to affordable credit for the private sector remains limited, despite stern warnings from the apex bank.

For instance, KCB Bank last month lowered its lending rate by one basis point to 14.6 per cent from 15.6 per cent, while Co-op Bank’s rate dropped from 16.5 per cent to 14.5 per cent, reflecting a 2 per cent reduction. Other major banks followed suit, with Equity Bank, Absa, and NCBA lowering their rates to 14.39 per cent, 13.5 per cent, and 15.34 per cent, respectively. DTB Bank also made a slight reduction of 0.87 per cent.

According to Kenya Bankers Association (KBA) CEO Raymond Molenje, banks have reduced their rates by an average of 3 per cent since the CBR cuts began.

He also explained that banks typically take 30 days to adjust their rates after a CBK rate revision, meaning borrowers should start seeing relief reflected in their loan repayments this month.

“It’s actually at an individual bank level because CBK has different frameworks. In fact, if you apply these frameworks to some banks, interest rates could actually go up. That’s why we need a uniform, transparent system across all banks to ensure compliance,” he stated while addressing the National Assembly’s Finance and Planning Committee.

Meanwhile, smaller banks demonstrated greater responsiveness by significantly lowering their rates. Kingdom Bank, for example, slashed its lending rate from 19.32 per cent to 13.86 per cent, a 5.5 per cent drop.  Citi Bank NA Kenya reduced its rates by 5.69 per cent to 12.78 per cent from 18.47 per cent in September last year, while Consolidated Bank and Stanbic Bank cut their rates to 13.31 per cent and 13.68 per cent, respectively.

If this trend continues, Kenyans could gain access to more financing options for both business and personal expenses, increasing cash flow in the economy—a crucial factor in alleviating economic pressures.

Rate adjustments

“What we’re saying is that the Central Bank will publish a report after March, outlining the rate adjustments made in February and March. The reported 0.3 per cent to 3 per cent reductions were done in compliance with the directive. However, we have asked CBK to eliminate the 30-day adjustment period so that rate changes—whether increases or decreases—take effect immediately,” Molenje added.

At this rate, banks remain key players in Kenya’s economic landscape, influencing multiple sectors through their lending practices. If interest rates become more affordable for both the public and private sectors, the Kenyan economy could experience a significant rebound, spurred by increased business activity and investment.

Combined with favourable policies, lower lending rates could also reduce the cost of living for ordinary Kenyans—especially those at the bottom of the economic pyramid—creating a more inclusive and financially stable economy.