Relief for Borrowers as 23 Kenyan Banks Slash Interest Rates After CBK Cuts

Central Bank Manager

Nairobi Kenya:

A total of 23 commercial banks in Kenya have lowered their lending rates following successive interest rate cuts by the Central Bank of Kenya (CBK). The move is expected to make borrowing more affordable and stimulate economic activity across various sectors.

According to data released in December, the average lending rate declined to 16.89% from 17.22% recorded in November. Among the 10 listed banks, Housing Finance reported the highest lending rate at 20.17%, while Standard Chartered recorded the lowest at 15.28%. Other banks with revised rates include Absa at 18.95%, NCBA at 18.04%, I&M Bank at 17.86%, Co-operative Bank at 16.90%, KCB at 16.84%, Diamond Trust Bank at 16.80%, Equity Group at 16.07%, and Stanbic at 15.36%.

Despite the general trend of rate reductions, some banks opted to increase their lending rates. Notable among these were KCB Bank, Diamond Trust Bank, and Co-operative Bank. Other banks that adjusted their rates upwards included Family Bank, Sidian, Consolidated, Habib, DIB, Kingdom Bank, Gulf African, Premier Bank, Credit Bank, Access Bank, and Middle East Bank.

CBK Policy Impact

The CBK began its monetary easing policy in August 2024 with a 25-basis point cut, followed by a 75-basis point reduction. This brought the benchmark lending rate down to 12.00%. In December, the central bank made an additional 75-basis point cut, lowering the rate further to 11.25%. The next Monetary Policy Committee (MPC) meeting is scheduled for February 8, 2025, where further adjustments may be considered.

The Kenya Bankers Association (KBA) acknowledged the CBK’s efforts and indicated that while lending rates are decreasing, the reductions will be phased in gradually. This is due to the structure of the banking system, where banks mobilize deposits and issue loans from the same deposit pool. Since many deposits were secured at higher rates before the CBK cuts, banks must wait for these funds to mature before fully reflecting the lower rates in their lending products.

Regulatory Push for Fair Lending Practices

CBK Governor Kamau Thugge has urged banks to align their lending rates with the central bank’s policy changes. He pointed out that financial institutions were quick to increase rates when the CBK raised the benchmark rate and should now show the same responsiveness in reducing rates.

“Banks must ensure fairness in their lending policies,” Thugge stated. “They were swift to adjust when rates were on the rise, and we expect the same now that rates are coming down.”

Borrowers Advised to Engage Banks

As lending rates decline, borrowers are encouraged to monitor their banks’ communications regarding loan adjustments. The KBA has urged customers to engage directly with their financial institutions to understand how these changes affect their personal credit risk profiles and borrowing costs. The association also noted that while the general trend is a reduction in rates, individual lending terms may still vary based on a borrower’s risk assessment.

Summary

With the next CBK monetary policy meeting approaching, further adjustments to interest rates remain a possibility. Market analysts will be watching closely to see how banks respond and whether more lenders follow suit in reducing borrowing costs. For now, borrowers and businesses are advised to stay informed and proactively engage with their financial providers to take advantage of favorable lending conditions.


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