Kenya’s Lending Rates Shift as KCB Lowers Borrowing Costs

Kenya Commercial Bank (KCB) has slashed its lending rate from 15.6% to 14.6%, a move that could ease borrowing costs for individuals and businesses. The adjustment, effective from 10 February 2025, comes in response to growing pressure from the Central Bank of Kenya (CBK), which has been cracking down on lenders reluctant to reduce rates despite monetary policy changes.

In a statement, KCB clarified that the revised rate applies to all new and existing Kenya shilling-denominated loans, excluding fixed-rate credit facilities. “The final lending rate is based on a customer-specific margin, adjusted to the base rate, in line with the approved Risk-Based Credit Pricing Model,” the bank stated.

CBK Tightens Its Grip on Lenders
The CBK has been actively pushing for lower interest rates to stimulate economic recovery. On 5 February, Governor Kamau Thugge announced that the regulator had begun physical inspections of banks to ensure compliance. Non-compliant lenders now face strict penalties under the Banking Act, including daily fines.

The pressure follows CBK’s decision to cut the benchmark lending rate to 10.75% from 11.25% and lower the cash reserve ratio to 3.25% from 4.25%, injecting KES 73.7 billion ($570 million) into the economy. Despite this, many banks had been slow to adjust lending rates, citing the high cost of fixed deposits as a challenge.

Will Other Banks Follow?

With borrowers struggling under high credit costs and private sector lending hitting a 22-year low in December 2024, CBK’s intervention is expected to boost lending and economic growth. Lower rates could also help banks manage rising non-performing loans, particularly in sectors like trade, real estate, and manufacturing.