From June 2025 the Central Bank of Kenya (CBK) will start imposing daily penalties on commercial banks that don’t pass on lower interest rates to borrowers despite the recent rate cuts. This comes after the CBK has cut the Central Bank Rate (CBR) from 13% to 10% since August 2024 to reduce borrowing costs and boost private sector credit growth. However, CBK findings show that as of February 2025 only 5 out of 38 banks have adjusted their lending rates by at least 2.25 percentage points.
Physical Inspections and Compliance Audits Underway
In response, CBK launched physical inspections in February to identify non-compliant banks. According to CBK Governor Kamau Thugge, 13 banks have been inspected so far and the rest will be completed by end of June.
“We will start having discussions with the boards of institutions that have been inspected. After that we will make decisions on what kind of penalties—if any—that will be imposed,” said Governor Thugge during a media briefing on Wednesday.
The CBK’s risk-based pricing framework requires loan pricing to reflect the creditworthiness of borrowers and macroeconomic indicators including changes to the benchmark rate. The regulator has accused several banks of not adjusting their pricing despite benefiting from reduced funding costs.
Penalties Under Banking Act
CBK will apply Section 55 of the Banking Act to penalize offenders. Institutions will be fined up to Sh20 million or three times the amount of financial gain. Additionally, daily penalties of up to Sh100,000 per case will be levied and individual bank executives found culpable will face personal fines of up to Sh1 million.
“The penalties prescribed shall not exceed twenty million shillings in the case of an institution or three times the gross amount of the monetary gain made… or one million shillings in the case of a natural person,” the Act states.
CBK has also reserved the right to introduce additional fines up to Sh100,000 per day the violation persists.
Mixed Response Among Banks
Some banks—Citibank NA Kenya, Absa Bank, Standard Chartered Bank Kenya, Victoria Commercial Bank, Stanbic Bank Kenya—have already adjusted their rates. But many others are not. In the wake of the latest policy, KCB Group has moved to adjust its rates. KCB has lowered its base lending rate from 14.6% to 13.85% effective April 11 for new loans and May 11 for existing facilities.
Policy Changes to Lower Cost of Credit
CBK has also implemented a rare triple policy easing to boost credit. These are:
- Reducing the interbank market interest rate corridor from 1.5 to 0.75 percentage points,
- Lowering the emergency lending facility penalty from 3 percentage points to 0.75 percentage points above the CBR.
These will lower the cost of funds for banks and enable them to offer cheaper credit to borrowers. But private sector credit growth is still sluggish and banks are accused of prioritizing profit margins over overall economic recovery.
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