Bank ABC and Access Bank Kenya—the subsidiary owned by Nigeria’s largest bank by assets—could get fined by the regulator, Central Bank of Kenya (CBK), for refusing to comply with the loan rate cuts.
The two banks top a list of five lenders that raised lending rates in March, despite warnings from the Central Bank of Kenya. Access Bank pushed its average rate to 20.5%, up from 20.39%, while ABC moved from 17.42% to 17.54%. Others—DIB, Kingdom, and Guardian Bank—also nudged their rates higher, putting them in the regulator’s crosshairs.
This showdown has been brewing for months. Since August 2024, the CBK has been cutting its benchmark policy rate to make loans cheaper. But some banks, rather than follow suit, have held firm—or raised rates altogether. Frustrated, the CBK now plans to start fining non-compliant lenders from June: KES 20 million ($155 million) upfront or three times the gain, plus daily penalties. Bank executives, too, could be personally fined.
So why the standoff?Banks argue that the CBK’s new pricing formula—pegging rates to its benchmark rate plus a lending margin—is too rigid. They prefer using the interbank rate, which they say reflects market realities better.
Yet, Kenya is not an isolated case, even in Africa. In 2018, the Bank of Ghana (BoG) and commercial banks in the country went through the same dance. The BoG had cut its key rate by 550 basis points to 20% for nearly two years, but banks didn’t pass on the lower rates to borrowers—largely due to a high volume of bad loans. Elsewhere, in South Africa and Morocco, regulators have also struggled with banks to rein in lending rates, as lenders remain wary of credit risk.
What the CBK has going for it is the Supreme Court’s June 2024 ruling, which stated that banks must seek approval from the Cabinet Secretary before raising interest rates on loans. This decision cleared the path for the CBK’s push to enforce compliance with rate cuts.
And it seems determined to win this one. Whether through fines, pressure, or more inspections, it wants rates to come down—and fast. Because if credit doesn’t flow, the economy won’t either.
In this tug-of-war, it’s borrowers who are still paying the price.
