Banks That Can’t Cut Lending Costs to Face Penalty by CBK

The Central Bank of Kenya (CBK) has taken route to implement aggressive measures that would see banks cutting lending rates or paying heavy daily fines of up to Sh100,000 per loan account in breach and penalties of up to Sh20 million or three times the monetary gain for banks that fail to comply.

It’s now the fourth consecutive time, that CBK now cuts its benchmark rate 11.25% to 10.75% and reduced the cash reserve ratio from 4.25% to 3.25%, freeing up Sh73.7 billion for lending, as private sector credit contracted by 1.4% in December against an ideal growth of 12-15%.

READ MORE: CS Treasury John Mbadi Encourages Banks to Lower Lending Rates

Since August 2024, CBK has taken note that only four backs- Citibank NA Kenya, Standard Chartered Bank of Kenya, Victoria
Commercial Bank, and Stanbic Bank Kenya – have complied to the policy changes reducing their rates by at least 1.75 percentage points. Others have been slow to pass on previous rate cuts to borrowers, which is making CBK to take this route.

In regards, CBK has begun physical inspections of banks to ensure compliance with the Risk-Based Credit Pricing Model, as high lending rates have led to increased non-performing loans, which stood at 16.4% in December 2024, though showing slight improvement from 16.7% in September.