For nearly a year, the Central Bank of Kenya (CBK) has been cutting interest rates and demanding that commercial banks follow suit. But despite the repeated warnings, inspections, and threats of fines, the cost of borrowing for ordinary Kenyans has hardly moved.
Rate cuts that never reach borrowers
Since October 2024, CBK Governor Kamau Thugge has led a series of cuts, lowering the central bank rate from 13% last August to 9.5% today. The aim was to make loans cheaper, reinvigorate the economy by encouraging businesses to borrow and invest, and help households breathe a little easier.
While the CBK has cut interest rates since last October by three and a half percentage points, commercial banks have only lowered their lending rates by about two points, from an average of 17.2% to 15.2%. That is barely noticeable for most Kenyan small businesses and startups struggling with cash flow.
The governor’s frustration
The slow response by banks has irked the central bank, with Thugge expressing this in press conferences and sector events.
“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,” Thugge said in December 2024.
In February 2025, CBK threatened daily fines of KES 100,000 per violation for lenders that refused to adjust their rates. In May, the regulator singled out banks, including Access Bank and ABC Bank, for raising their lending rates against the tide of cuts.
“We will soon start having discussions with the boards of institutions with complete inspections. Following that, decisions would be made as to what kind of penalties, if any, that will be brought on board,” Thugge told reporters in May.
To end the excuses from lenders, CBK, in August, unveiled a new loan pricing model tied to the Kenya Shilling Overnight Interbank Average (Kesonia) plus a risk premium “K.”
The new rate, pegged to the Central Bank Rate (CBR) within a 0.75-point corridor, would act as a transparent rate. Banks then add a disclosed premium to reflect borrower risk, costs, and shareholder returns.
On September 18, Thugge, in his own words, said, “There should be no excuse by banks for whatever reason. This time, there won’t be an excuse. Once we lower the rate, banks should also lower their rates.”
It’s unclear whether the CBK has imposed fines on non-compliant banks since June. Thugge has urged banks to move quickly without stating the consequences commercial banks and their boards face if they fail to cut rates.
“If I were you, I would move as quickly as possible to implement this framework because Kenyans will choose to go to a bank with a transparent framework,” Thugge said on September 18.
Banks: It’s not that simple
Commercial banks, through the Kenya Bankers Association (KBA), argue it is not that simple. In September, KBA chief executive Raymond Molenje told Business Daily that the earlier loan pricing systems were poorly designed, and many lenders never properly set them up.
“Because of competition, most banks did not seek assistance. For the majority, the feedback was that interest rates were always going up, leading some to abandon their frameworks,” Molenje said.
In other words, the old pricing model was messy, so the banks ignored it. Meanwhile, the regulator has been left alternating between pleading, warning, and threatening, as lenders appear confident that it will hesitate to impose real penalties.
Lenders argue that the economy is still shaky, with businesses struggling and households stretched, and that rushing to slash rates would only swell their pile of bad loans.
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