The Central Bank of Kenya (CBK) lowered the benchmark lending rate by 50 basis points to 10.75% from 11.25% on the 5th of February. This move, announced after the Monetary Policy Committee (MPC) meeting, aimed to stimulate economic growth by making credit more affordable. Additionally, the Cash Reserve Ratio (CRR) was cut by 100 basis points to 3.25% from 4.25%, further increasing liquidity in the banking sector.
The MPC’s decision was influenced by economic assessments, including the latest CEOs Survey and Market Perceptions Survey. Findings indicated rising optimism in Kenya’s economic outlook, with business leaders citing a stable macroeconomic environment, declining interest rates, and improved agricultural output due to favorable weather.
Strict CBK Enforcement on Lending Rate Compliance
To ensure banks passed on the benefits of lower rates to borrowers, CBK introduced strict penalties for non-compliance. Financial institutions that fail to adjust their lending rates accordingly will face daily fines of up to Sh100,000 per loan account in violation and penalties of up to Sh20 million or three times the financial gain accrued.
CBK also commenced on-site inspections to enforce the Risk-Based Credit Pricing Model (RBCPM). Under recent amendments to the Banking Act, non-compliant banks risked regulatory action if they failed to reflect the reduced cost of funding in their lending rates.
Despite previous rate cuts, CBK noted that many banks had been slow to adjust. Since August 2024, only four institutions—Citibank NA Kenya, Standard Chartered Bank Kenya, Victoria Commercial Bank, and Stanbic Bank Kenya—had reduced their lending rates by at least 1.75 percentage points. High lending rates had contributed to an increase in non-performing loans, which stood at 16.4% in December, a slight improvement from 16.7% in September.
Kenyan Banks Respond with Lending Rate Reductions
Following CBK’s directive, several commercial banks have revised their lending rates to align with the new monetary policy measures:
- Co-operative Bank of Kenya lowered its Base Lending Rate from 16.5% to 14.5% per annum. The new rate, effective immediately, includes an additional margin of 0% to 4%, depending on the borrower’s credit profile.
- KCB Bank Kenya reduced its base lending rate from 15.6% to 14.6% per annum, effective February 10, 2025. The final rate for each borrower will be determined based on individual risk assessments under the RBCPM.
- Equity Bank Kenya revised its rates for all Kenya Shilling-denominated loans. Effective February 13, 2025, for new loans and March 1, 2025, for existing loans, the Equity Bank Reference Rate (EBRR) was reduced to 14.39%, reflecting a 3% reduction across multiple credit products.
- Diamond Trust Bank (DTB) implemented a phased reduction in lending rates, cutting rates by 50 basis points (0.50%) on January 1, 2025, and an additional 37 basis points (0.37%) from February 15, 2025.
- I&M Bank announced a 2.00% reduction in Kenya Shilling lending rates starting March 1, 2025. This follows an earlier 0.75% cut in Q4 2024, bringing the total reduction to 2.75%.
- NCBA Bank lowered its lending rate from 16.91% to 15.34%, effective February 16, 2025.
- Absa Bank reduced its Base Rate from 16.5% to 13.5%, along with a 1% reduction in risk-based lending rates. The changes apply immediately for new loans and take effect for existing loans from March 13, 2025.
With these rate adjustments, borrowers can expect improved access to credit, supporting businesses and individuals navigating the current economic landscape.