Kenyan banks are scrambling to slash lending rates following a stern warning from the Central Bank of Kenya (CBK), which has threatened daily fines for non-compliance.
The regulator is cracking down on lenders slow to adjust their rates despite multiple CBK rate cuts aimed at making credit more affordable for businesses. Under Kenya’s Banking Act, non-compliant banks risk fines of KES 20 million ($154,619) or three times the financial gain, along with daily penalties of KES 100,000 ($773) per violation. Senior bank officials could also face fines of up to KES 1 million ($7,730).
Leading banks—including KCB Group, Equity Group, Cooperative Bank, I&M, and DTB—have responded by lowering interest rates by one to four percentage points. CBK’s goal is to stimulate economic growth and provide relief to struggling households and businesses.
Equity Bank has led the way, cutting its lending rates for the third time in six months, making it the only major lender to consistently align with CBK’s monetary policy.
“The regulator wants banks to pass on the benefits of recent monetary policy decisions to borrowers, which hasn’t been happening,” said a senior CBK official, speaking anonymously. “If banks fail to comply, they will face penalties.”
CBK has ramped up surveillance, conducting onsite inspections to ensure lenders price their loans according to risk-based models and the declining central bank rate. More banks are expected to follow suit to avoid financial penalties.
“All we’re asking is for banks to be fair—just as they were quick to raise lending rates when policy rates and treasury rates climbed,” CBK Governor Kamau Thugge emphasized on December 6.
“If they don’t adjust, it will be a no-win situation for everyone, and the economy will struggle,” he added.
Despite three consecutive rate cuts, the gap between the central bank rate and lending rates has widened to a near three-year high, raising concerns over the weak transmission of monetary policy to borrowers. The average interest rate has climbed to 17.22%, an eight-year peak, slowing private sector credit growth to 1.4%.
Since August 2024, CBK has lowered the benchmark rate by 2.25 basis points to 10.75%, with the most recent cut on February 5, 2025.