Kenyan Banks to Lower Lending Rates Following CBK Directive
In a significant move to stimulate economic growth and ease the financial burden on borrowers, Kenyan commercial banks have agreed to lower their lending rates effective December 2024.
This decision comes in response to directives from the Central Bank of Kenya (CBK) and follows recent monetary policy changes, including a reduction in the benchmark rate to 11.75%.
The CBK had previously expressed concern over the widening gap between the Central Bank Rate (CBR) and commercial lending rates, which had reached a 31-month high in October. Despite multiple reductions in the CBR, banks were slow to pass on these benefits to consumers, leading to continued increases in average interest rates.
Following pressure from the CBK, the Kenya Bankers Association (KBA) announced that its 43 member banks would review their loan interest rates, aiming to make borrowing more affordable for individuals and businesses. The KBA emphasized that the rate reductions would be gradual and aligned with current monetary policy and economic conditions.
While the move is welcomed, questions remain about the immediate impact of the incremental rate cuts. The KBA has urged the CBK to consider further rate reductions to stimulate economic growth and increase access to credit. Banks have also been advised to carefully assess customers’ risk profiles to mitigate potential risks associated with increased lending.
To address broader issues affecting credit growth, the KBA is collaborating with the government to review risk-based pricing models, resolve delayed payments to businesses, and address the backlog of litigation.
This latest development follows the CBK’s decision in early December to lower its base lending rate for the third consecutive month, reflecting stable inflation and a decline in the prices of goods and services.
