The Central Bank of Kenya (CBK) has cut the benchmark interest rate from 11.25% to 10.75%, and said that it “has embarked on on-site inspection of banks to ascertain that they are reducing their interest rates.”
- The move to inspect banks lending rates, the apex bank says, is because despite the fact that the “CBR has been lowered substantially since the MPC meeting of August 2024,…lending rates have only declined marginally.”
- The average lending rate by commercial banks eased marginally in December by 0.3% from 17.22% in November to 16.89% in December.
- In December, 23 banks reduced their lending rates, 14 hiked their overall lending rate, while Equity bank retained its November rates.
In late January, the Kenya Bankers Association lobbied for more interest rate cuts, blaming the low pace of downward rate cuts to elevated non-performing loans ration. Further rate cuts, the industry lobby group said would “provide additional impetus to the ongoing downward adjustments in the commercial banks’ lending rates.”
Among those that hiked rates after the last Central Bank Rate (CBR) cut in December included KCB Bank, Diamond Trust Bank and Co-operative Bank for listed banks and Family Bank, Sidian, Consolidated, Habib, DIB, Kingdom Bank, Gulf African, Premier bank, Credit Bank, Access Bank and the Middle East Bank.
The move to conduct on-site inspections will pile pressure on banks to cut interest rates, as recently enacted amendments mean that lenders that don’t pass on reduced cost of credit will be penalised.
In addition to lowering the interest rate, Central Bank’s Monetary Policy Committee (MPC) has lowered the Cash Reserve Ratio (CRR) by 100 basis points to 3.25% from 4.25% to “support the lowering of lending rates.” The CRR is the minimum amount of deposits, both domestic and foreign currency, that commercial banks have to hold as reserves with the central bank. Its lowering frees up more deposits for lenders to offer as loans to customers.
