Customers in a banking hall. /FILECommercial banks can continue increasing interest rates on loans without first seeking approval from the Cabinet Secretary for National Treasury after the High Court suspended the operation of a key provision of the Banking Act.
Justice Peter Mulwa issued the conservatory order on August 13, 2026, staying implementation of Section 44 of the Banking Act insofar as it requires financial institutions to obtain prior approval before increasing loan interest rates.
The order will remain in force pending the hearing and determination of a petition by the Court of Appeal.
The ruling follows a legal challenge by the Kenya Bankers Association (KBA) against an earlier decision by the same court on December 11, 2025, which found that Section 44 was not inconsistent with Article 231(2) and (3) of the Constitution.
KBA filed a Notice of Appeal on December 18, 2025, and subsequently moved the High Court on January 28, 2026, seeking to suspend enforcement of the provision while its appeal is determined.
Justice Mulwa found that the appeal raised an arguable constitutional question over the relationship between the Central Bank of Kenya's constitutional mandate and the powers given to the Cabinet Secretary under Section 44.
The judge said forcing banks to comply with the provision while the appeal was pending could create serious consequences if the Court of Appeal ultimately found the law unconstitutional.
“Sec44 of the Banking Act bars commercial banks from changing loan interest rates without prior approval from the executive,” Justice Mulwa said.
He warned that if banks were required to comply with the provision pending the appeal, a later decision invalidating it could trigger “significant and lasting disruption in the banking industry” and widespread litigation over past interest charges.
“These issues and losses cannot be easily fixed with damages, making the appeal mostly futile,” the judge said.
Justice Mulwa also said maintaining the regulatory position that existed during the trial would promote stability in the financial sector as the dispute moves to the Court of Appeal.
Respondents in the case did not file a response or submissions opposing KBA's application.
The decision effectively removes, for now, the statutory requirement for banks to obtain Treasury approval before increasing loan interest rates.
The dispute has its roots in a long-running debate over whether the liberalisation of interest rates removed regulatory controls on banks' ability to vary lending rates.
The Supreme Court settled a key part of that debate in June 2024 when it ruled in Stanbic Bank Kenya Ltd v Santowels Ltd that the repeal of the interest-rate cap did not completely liberalise lending rates.
It held that interest rates on loans remained subject to Section 44 and that banks were required to obtain the Cabinet Secretary's approval before increasing them.
The Supreme Court affirmed Section 44's regulatory check intended to protect borrowers from exploitative rates, noting that the discretion given to banks to vary interest rates could not be exercised “willy nilly” to impose exorbitant charges.
Justice Mulwa's order does not overturn that Supreme Court position. It temporarily suspends its practical effect on banks while KBA's appeal is pending.
For borrowers, however, the immediate implication is that banks can raise lending rates without first obtaining the Cabinet Secretary's approval, leaving the question of how far that discretion can be exercised to be determined through the ongoing appeal.
