Central Bank of Kenya (CBK) Governor Dr. Kamau Thugge has shed light on why some commercial banks have not lowered their lending rates, despite the recent reduction of the Central Bank Rate (CBR) from 11.25% to 10.75%.
Speaking before the Departmental Committee on Finance and National Planning on Tuesday, March 25, alongside officials from the Kenya Bankers Association (KBA), Dr. Thugge explained that the adjustment in CBR and the reduction of the Cash Reserve Ratio (CRR) from 4.25% to 3.25% were aimed at increasing liquidity in the banking sector and easing the cost of credit.
However, he acknowledged that commercial banks had yet to fully pass on the benefits to borrowers.
He emphasized that banks are expected to lower their lending rates in response to the reduced cost of funds, thereby stimulating private sector credit growth and supporting economic activity.
Dr. Thugge also reminded the Committee of recent amendments to the Banking Act, which impose penalties on banks that fail to adjust their rates accordingly.
Banks Yet to Meet Core Capital Requirement
Committee members raised concerns over the compliance of commercial banks with the new Sh10 billion core capital requirement. They noted that only 24 out of 38 banks had met the December 2024 deadline.
In response, Dr. Thugge stated that the CBK had instructed the remaining banks to submit board-approved capital buildup plans outlining clear timelines and milestones to meet the requirement.
“Mr. Chairman, we have asked these banks to submit board-approved capital buildup plans detailing specific measures, timelines, and milestones to achieve compliance,” he said.
Committee Chair Molo MP Kimani Kuria commended the CBK for maintaining stable inflation and exchange rates but urged the regulator to ensure that lower interest rates do not destabilize the exchange rate.
Lawmakers also expressed concern over the contraction of private sector lending, warning that it could hinder economic growth and business expansion.
They urged commercial banks to align their lending rates with CBR adjustments in line with international best practices.
Kenya Bankers Association (KBA) CEO Raimond Molenje told the Committee that banks had already lowered interest rates by 2.2% between November 2024 and March 2025 in response to the CBR cut.
He explained that banks typically require a one-month notice period before adjusting lending rates, in accordance with the Consumer Protection Act and CBK Prudential Guidelines.
However, Committee members, led by Chair Kimani Kuria, questioned why banks are often quick to raise interest rates but slow to lower them.
“Why is it that banks are quicker to raise rates than lower them?” Kuria posed.
In response, KBA officials committed to improving communication with CBK following Monetary Policy Committee (MPC) meetings to ensure fair and timely adjustments across the sector.
The Committee also inquired about the implementation of the new $15,000 maximum cash withdrawal limit under the Anti-Money Laundering Act.
KBA officials confirmed compliance with the new regulation and highlighted enhanced due diligence measures for new customers.
Additionally, they urged the Committee to address the issue of pending government bills, citing their impact on entrepreneurs’ ability to service loans and overall banking sector liquidity.
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