On February 14, the Central Bank of Kenya (CBK) gave us a masterclass on power play. After months of resisting the CBK’s four consecutive cuts to the benchmark interest rate, commercial banks are now hastily adjusting their lending rates following the apex bank’s threat of imposing daily fines for non-compliance.
The CBK’s intensified pressure has left Kenyan banks scrambling to lower their rates, marking a significant shift in their stance. Despite the central bank’s repeated efforts to ease borrowing costs, many banks had delayed passing on these benefits to customers, resulting in a widening gap between the CBK rate (10.75%) and actual lending rates. Now, faced with the prospect of hefty penalties, banks are finally falling in line.
The CBK is enforcing stricter measures. Banks that fail to adjust could face fines of KES 20 million ($154,619) or three times the monetary gain from higher rates. Additionally, bank officials risk personal fines of up to KES 1 million ($7,730). Leading lenders—including KCB, Equity, Cooperative Bank, I&M, and DTB—have responded by slashing rates by one to four percentage points. Equity Bank, in particular, has made three reductions in six months, positioning itself as the most responsive to CBK’s directives.
Loans could become more affordable for borrowers. However, with the average lending rate still at 17.22%—an eight-year high—access to credit remains a challenge. The high rate of non-performing loans (NPLs) could leave banks wary of borrowers, leading to more scrutiny during borrowing processes. While the intense due diligence could solve the problem of bad loans, it will also likely reduce borrowing activity, taking the goal of stimulating economic participation further away from the apex bank.
Yet, it is a good thing. The rate of compliance—although forced—signals that banks are willing to set aside differing opinions, and work with the regulator to achieve a common goal.
