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The Kenya Bankers Association (KBA) on Sunday, December 8, 2024, announced that some banks had started reducing loan interest rates.

In a statement, KBA noted some bankers had started sending notices to their customers announcing the reduction in loan rates starting this December.

Kenya Bankers Association Chairman John Gachora detailed that the reduction would be applied progressively following the reduction of the benchmark lending rate.

“Individual banks are issuing the requisite notices to customers indicating reductions in loan rates from December 2024, and these reductions will continue progressively in line with the evolution of monetary policy and credit risk factors,” KBA’s statement read in part.

“As the business of banking involves mobilizing deposits and extending loans from the pool of deposits, we will continue to progressively reduce the loan interest rates, balancing against the prolonged high cost of customers’ deposits that were locked in during a period of higher interest rates before the Central Bank of Kenya initiated interest rate cuts,” it added.

Nonetheless, KBA clarified that individual banks would assess their customers’ profiles before deciding, as most financial institutions had transitioned to risk-based credit lending.

“As the banking sector transitioned to a risk-based credit pricing environment, each bank is mandated to assess its customers’ risk profiles and price their credit accordingly. This is based on the individual bank’s approved base rate and valuation of the risk premium. While the base rates primarily reflect the Central Bank Rate and the cost of borrowing by the government, the customers’ risk premiums mirror the market conditions such as the level of non-performing loans and any challenges that customers face that may constrain their ability to service loans.

While admitting that customers are bedevilled by a myriad of challenges, KBA maintained that it had initiated talks with the Kenya Kwanza administration and other stakeholders to unlock affordable credit.

CBK review

The decision to start reducing the loan interest rates followed CBK’s decision to reduce the benchmark lending rate by a further 75 basis points to 11.25 per cent, marking its third rate cut in 2024.

Speaking during CBK’s final Monetary Policy Committee, CBK Governor Kamau Thugge attributed the cut to the cooling inflation, a relatively stable currency, and a slowed economy for the first six months of the year.

Despite the third successive cut, Thugge raised concern over the decision by some banks to maintain their high interest rates. In his address, Thugge directed banks to lower the rates as fast as they hiked them.

“Certainly, the banks have been sluggish in lowering their interest rates, and as you know, I have had meetings with the banks. The last two weeks we’ve had meetings with all the CEOs of banks, and I do believe that they now understand they need to start aggressively lowering interest rates to consumers,” Thugge said.