By 
Kenyan commercial banks are swiftly reducing lending rates following a stern directive from the Central Bank of Kenya (CBK), which has warned of daily fines for non-compliance.
The financial regulator is tightening oversight on banks that have been sluggish in adjusting their rates despite multiple reductions in the Central Bank rate aimed at easing credit costs for businesses. Under Kenya’s Banking Act, the CBK has the authority to impose fines of KES 20 million ($154,619) or three times the monetary benefit gained by banks that fail to adhere to industry regulations.
Banks also risk daily penalties of KES 100,000 ($773) per infraction, while individual bank executives may face fines of up to KES 1 million ($7,730). Leading financial institutions, including KCB Group, Equity Group, Cooperative Bank, I&M, and DTB, have responded by cutting interest rates by one to four percentage points. The CBK’s move aims to stimulate economic activity and provide relief to struggling businesses and households.
Equity Bank has taken the lead in rate reductions, implementing its third cut in six months—making it the only major lender consistently aligning its borrowing costs with CBK’s monetary policy shifts.
“The regulator wants banks to pass on the benefits of recent monetary policy changes to borrowers, which has not been happening,” said a senior CBK official, speaking on condition of anonymity. “Failure to comply will result in penalties.”
To enforce compliance, the CBK has intensified its monitoring efforts, conducting onsite inspections to ensure banks adjust loan pricing based on risk models and the falling central bank rate. Banks that have yet to comply are expected to lower their rates to avoid financial repercussions.
“All we are asking is for banks to be fair—just as they quickly raised lending rates when policy rates were climbing,” CBK Governor Kamau Thugge stated on December 6.
“It is in the banks’ own interest to lower lending rates. If they continue resisting, it will hurt everyone, and the economy will struggle to perform,” Thugge added.
Between November and December 2024, Thugge summoned banking executives, urging them to ease borrowing costs to support economic growth. However, only a few institutions, including Equity Bank, have responded to the directive.
Despite three consecutive rate cuts, the disparity between the central bank rate and commercial lending rates has widened to its highest level in nearly three years, raising concerns over the slow transmission of monetary policy changes to consumers.
The average lending rate has climbed to 17.22%, an eight-year peak, leading to a 1.4% decline in private sector credit growth.
Since August 2024, the CBK has reduced its benchmark rate by 2.25 percentage points to 10.75%, with the most recent cut occurring on February 5, 2025.
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