Commercial banks have cut interest rates on loans by just one percentage point over the past year, largely defying a trend of steep cuts on the indicative Central Bank of Kenya (CBK) rate.
An analysis of the overall weighted lending rates of all 38 banks published by the CBK shows that the average interest rate for the industry fell by 1.03 percentage points to 15.78 percent in June from 16.81 percent in July 2024.
Interest rates across specific commercial banks have varied, with some seeing a fall greater than adjustments to the CBR (3.25 percent cuts since August 2024), while some lenders' overall weighted rates have moved higher in the last 12 months.
Citibank N.A. Kenya has posted the fastest deceleration in lending costs, with its overall rate falling to 10.6 percent in June of 2025 from 17.98 percent last year.
Other banks whose rates have fallen by a wider margin than the CBR cuts include Stanbic Bank Kenya Limited (4.99 percent), Standard Chartered Bank Kenya (4.65 percent), Absa Bank Kenya Plc (4.53 percent), Victoria Commercial Bank (4.1 percent), and Sidian Bank Kenya (3.46 percent).
Ten commercial banks have seen their overall weighted lending rates rise higher in June 2024 from July last year, with Access Bank Kenya Plc seeing an 8.6 percent bump in costs.
Other banks to post higher rates across the 12 months are Premier Bank Kenya (six percent), Diamond Trust Bank (DTB) (2.76 percent), Co-operative Bank of Kenya Limited (1.15 percent), Commercial International Bank (CIB) Kenya Limited (0.31 percent), DIB Bank Kenya (0.72 percent and Consolidated Bank of Kenya (0.41 percent).
Kingdom Bank Limited rates have meanwhile increased by 1.73 percent, Development Bank of Kenya 0.23 percent, and UBA Kenya Bank Limited 0.76 percent.
The negligible change in borrowing costs implies that borrowers have been left grappling with expensive loans despite the significant drop in other domestic interest rates.
The CBK has obliged to a proposal by banks to base the new industry interest rate benchmark on the interbank market rate, as they prepare to transition from risk-based pricing.
The apex bank previously proposed to base the new pricing regime on its policy rate, also known as the Central Bank Rate (CBR), before the lenders pushed back.
Commercial banks previously indicated difficulties in bringing down interest rates under the risk-based pricing framework, which lacks a uniform market reference rate.
“Following the repeal of the interest rate capping law in November 2019 and the subsequent transition of the industry to risk-based credit pricing, banking industry engagements with the CBK have centred on the need to strengthen the transmission of monetary policy signals and enhance the transparency in loan pricing,” the Kenya Bankers Association (KBA) said previously.
Commercial banks have had their way in influencing the CBK to drop the central bank rate as the reference rate for the new pricing regime in favour of the interbank rate.
According to KBA, the overnight interbank rate is the operational target of the CBK under the new monetary policy framework, which aligns interest rates on lending between banks and the CBR.
Last month, CBK revised its consultative paper on the review of the risk-based credit pricing model to accommodate the views of commercial banks.
“CBK proposes the use of the interbank rate as the common reference rate for determining lending rates for all customers. Total lending will be the interbank rate plus premium, denoted as ‘K’,” CBK said.
“The use of the interbank rate as the common reference rate is recommended as it is market-based. Further, the interbank market closely aligns with the policy rate (CBR) under the current monetary policy implementation framework.”
CBK is expected to finalise its review of the credit pricing framework before rolling it out to the market. It obliges banks to lodge their detailed board-approved credit pricing models, policies, and procedures no later than 15 days after end of a three-month transition period.
The CBK is expected to review each bank’s model and policies post-implementation as part of surveillance. Commercial banks have responded to CBK’s revised consultative paper on the review of the risk-based credit pricing model ahead of the rollout of the final framework.
“The new regime will have a uniform reference rate, which will be the interbank plus a competitive premium for each bank. We submitted our feedback as banks on Thursday last week,” said KBA chief executive officer Raimond Molenje.
