The Central Bank of Kenya (CBK) has announced it will begin imposing daily fines on commercial banks that fail to reduce their lending rates in line with the Central Bank Rate (CBR), effective June 2025. This comes as the regulator pushes to strengthen the transmission of monetary policy and ensure that borrowers benefit from the successive interest rate cuts aimed at stimulating economic activity.
Since August 2024, the CBK has lowered the CBR by a cumulative 2.25 percentage points, from a high of 12.75% to the current 10.00%, to encourage lending, lower the cost of credit, and support economic recovery amid easing inflation and a stabilizing shilling. However, many banks have been slow to adjust their lending rates downward.
The CBK has expressed frustration over the asymmetric behavior of banks, quick to raise interest rates during the tightening cycle between May 2022 and July 2024, but reluctant to reduce them during the current easing phase. This has led to a widening gap between the CBR and the average commercial lending rate, which stood at 16.89% in December 2024, despite the CBR having been cut to 11.25% at the time. Consequently, private sector credit growth has declined sharply, shrinking by 1.1% in the year to November 2024, well below the CBK’s 12–15% target needed to sustain robust economic expansion.
To enforce compliance, the CBK will implement daily financial penalties starting June. Banks that do not align their lending rates with the reduced CBR will face fines of up to Sh 20 million or triple the amount gained through non-compliance. Additionally, a daily penalty of Sh 100,000 will be levied until full compliance is achieved. Executives of non-compliant banks could also be held personally liable, with individual penalties reaching up to Sh 1 million.
This enforcement measure follows several rounds of on-site inspections conducted by the CBK since early 2025. At least fourteen banks were identified by April for failing to reflect the lower CBR in their lending rates, despite operating under risk-based pricing models that are meant to be responsive to market conditions. CBK Governor Kamau Thugge had previously issued warnings to banks in December 2024 and again in February 2025, urging them to act fairly and lower borrowing costs or face punitive action.
Governor Thugge has reiterated that the refusal by banks to lower rates undermines the CBK’s broader monetary goals of stimulating demand, supporting small and medium-sized enterprises, and easing the burden of non-performing loans, which stood at a concerning 16.5% in October 2024.
The CBK’s decision to begin enforcement in June allows additional time for banks to adjust voluntarily while the regulator finalizes the legal and operational framework for fines.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.