Two major commercial banks moved to lower their base lending rates, following the Central Bank of Kenya’s decision to cut the benchmark rate to 10.75% on Wednesday last week.
- •KCB Bank and the Cooperative bank of Kenya have cut their base lending rates for new loans, in a move likely to be mimicked by other banks.
- •Co-op bank cut its base lending to 14.5% from 16.5% – the first significant reduction since the CBK began its easing policy- while KCB bank reduced its base lending rate to 14.6% from 15.6%.
- •In December, the average lending rate by commercial banks eased marginally by 0.3% from a high of 17.22% in November to 16.89%.
In a statement, Co-op bank said the 14.5% will accompany a margin of between 0% to 4% based on an individual customer’s credit profile.
“The reduction in lending rates is intended to stimulate credit growth to key sectors of the economy notably the MSMEs that are a critical engine to drive and sustain economic growth,” Co-op bank said in the Monday statement.
Similarly, in line with the Risk Based Credit Pricing Model, KCB’s rate will be based on a customer-specific margin, adjusted to the base rate. “This applies to all existing and new KShs-denominated facilities and excludes fixed-rate credit facilities,” KCB said in a statement.
With inflation anchored within CBK’s lower target range and the shilling stable at 129, the apex bank has been aggressive on the cuts, in a bid to stimulate private sector credit growth. It lowered its benchmark rate four times since August 2024 from 13% to the current 10.75%. However, banks remained adamant in cutting rates, with no significant reductions since the easing policy began, arguing that they held expensive deposits.
The CBK also 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.
Last week, the CBK said it will conduct on-site inspections of banks to ascertain that they are reducing their interest rates. “Any bank that has not passed on the benefits of reduced cost of funds to reduce lending rates, will be penalised in accordance with the law,” the monetary policy committee said.
