CBK tightens noose on banks to pass low lending rate benefits

THE Central Bank of Kenya (CBK) has inspected 30 banks in plans to ensure they reduce their lending rates in line with the lowered Central Bank Rate (CBR).

Speaking during the post-Monetary Policy Committee (MPC) session with journalists on Wednesday, CBK governor Kamau Thugge said the regulator is keen to ensure credit supply to the private sector and families to spur economic development.

“We have so far conducted onsite inspections for 30 lenders out of 38. We anticipate concluding this exercise by June. Those found to be maintaining excessive lending rates despite lower costs of funds will face severe penalties, including fines amounting to three times their unjust gains,” Thugge said.

The regulator is concerned that the economy is not benefiting from eased monetary policies, with lending to the private sector still subdued, stifling expansion of businesses and job creation.

Although the base lending rate has been dropping since August last year, commercial bank lending to the private sector has stagnated, only recording a modest growth of 0.2 per cent in March 2025 from a contraction of 1.3 percent in February.

Average commercial banks’ lending rates declined to 15.8 percent in March 2025, from 16.4 percent in February and 17.2 percent in November 2024. On Wednesday, the MPC further slashed the base-lending rate by 75 basis points to 10 per cent, with the regulator expecting banks to pass benefits to borrowers.

This is yet another steep cut after another 50 basis points cut in February in addition to lowering the Cash Reserve Ratio (CRR) to 3.25 per cent in a move aimed at boosting private sector credit and lowering the cost of borrowing.

The CBR was previously cut thrice between August and December 2024 while the CRR was last revised at the onset of the Covid pandemic in March 2020, from 5.25 per cent to 4.25 per cent.

In an evening statement to media houses, CBK attributed the decision to low inflation, shilling stability and trends in the global economy where other jurisdictions are lowering the cost of credit.

“The Monetary Policy Committee (MPC) will closely monitor the impact of the policy measures as well as developments in both the local and global economy and stand ready to take further action as necessary in line with its mandate,” CBK said.

The number of borrows defaulting on loans is rising despite easing loan rates and inflation, a matter that has caught the attention of the regulator.

The latest data from CBK shows that the ratio of gross non-performing loans (NPLs) to gross loans stood at 17.2 per cent in February 2025 compared to 16.4 percent in December 2024.

Increases in NPLs were noted in real estate, personal and household trade, building and construction, and manufacturing sectors. Even so, banks have continued to make adequate provisions for the NPLs.

The apex bank praised measures taken to cushion the shilling from global volatiles, with the local currency holding steady against the greenback.

Yesterday, it traded 129.65 against the US dollar. It attributes this to narrowing current account deficit which hit 3.1 per cent of GDP in the 12 months to February 2025 compared to 3.3 per cent of GDP in a similar period in 2024, reflecting improved exports of goods and services and resilient diaspora remittance inflows, and lower oil imports.

Goods exports increased by 13.1 per cent, due to higher domestic exports, particularly agricultural commodities, and re-exports. Goods imports rose by 10.6 percent, reflecting increases in intermediate and capital goods imports.

Services receipts increased by 14 per cent, mainly, supported by increased receipts from transport and travel services while diaspora remittances increased by 14.5 per cent in the 12 months to February 2025.