Kenyan commercial banks will lower lending rates beginning December 2024, following increased pressure from the Central Bank of Kenya (CBK). Last week, the CBK’s Monetary Policy Committee reduced the benchmark rate by 75 basis points to 11.75%, the lowest level since the Covid-19 pandemic.”
Despite three successive rate cuts, the gap between the Central Bank Rate (CBR) and lending rates has widened to a 31-month high, raising concerns about the slow transmission of monetary policy changes to customers. In October, the spread between CBR and commercial lending rates rose to 5.15%, as average interest rates rose to 17.15% from 16.91% in September.
On December 6, CBK Governor Kamau Thugge told banks to align lending rates with recent reductions in CBR or risk harming the economy.
“All we are asking is for banks to be fair and to act in the same way that they were quick to raise lending rates when the policy rate was increasing and the treasury rates were increasing,” Kamau said.
“I think it’s in banks’ interest to lower their lending rates. If they continue on this path it will be a no-win for anyone and the economy will not be able to perform.”
The Kenya Bankers Association (KBA) said its 43-member banks will begin reviewing loan interest rates to “unlock access to affordable credit.” The decision comes after the lenders ignored the regulator’s previous warnings that retaining high interest rates was hurting private sector growth.
“The recent successive cuts in the Central Bank Rate (CBR) have implications on both deposit and lending rates in the market. Banks are taking steps to lower interest rates and make borrowing more affordable,” KBA said on Sunday evening.
“Individual banks are issuing the requisite notices to customers indicating reductions in loan rates from December 2024 and these reductions will continue progressively in line with the evolution of monetary policy.”
While KBA welcomes the rate cuts, it is also calling for larger reductions from the CBK to effectively stimulate lending and economic growth
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