In a statement, KCB said it has cut its base charge on loan by a percentage point to 14.6 percent, with the announcement coming a day after Co-operative Bank of Kenya reduced its rate by two percentage points to 14.5 percent.
Banks have been under pressure from the CBK to cut their cost of loans on concerns about a contraction in private sector credit by 1.4 percent in the year to December 2024, which threatens the country’s ability to grow the economy.
Under the risk-based loan pricing model, banks have a fixed base interest rate, on which they add a premium or margin which is determined by an assessment of the risk profile of a particular borrower.
KCB Group’s latest published financials, covering the nine months to September 2024, showed that the Kenyan banking subsidiary had a loan book of Sh726.95 billion, which represented 69 percent of the group’s total loan book of Sh1.05 trillion.
“This reduction takes effect from February 10, 2025. 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,” said KCB in a statement.
“This applies to all existing and new Kenya shilling denominated facilities and excludes fixed rate credit facilities.”
The CBK’s monetary policy committee has cut its base rate four times since August 2024 by a cumulative 2.25 percentage points to 10.75 percent, the latest of which was a 0.5 percentage points cut in last week’s meeting.
The regulator however accused banks of failing to pass on the benefit of lower interest rates to borrowers, and last week warned that it would hand down penalties to lenders who continue to keep their rates high, leaning on a section of the recently amended Banking Act which allows it to punish lenders who fail to comply with regulatory actions.
CBK governor Kamau Thugge said the regulator is now carrying out physical inspections of banks to expose and punish the ones that have refused to reduce their loan charges.
Those found culpable face punitive penalties of Sh20 million or three times the monetary gain they enjoy from charging high rates, and an additional daily penalty ofSh100,000 for each day of continued overcharging.
On their part, the banks earlier argued that they had locked in expensive deposits, which needed to wind down before the lenders could afford to lower their lending rates.
Latest CBK data on lending rates showed that between August and December, banks had made an average reduction of 0.33 percentage points in their rates, representing a small share of the 1.75 percentage points cut in the CBK’s base rate over the period.
