Chief executive officers of private firms have revealed slow cuts on interest rates charged to their commercial bank loans despite pressure from the Central Bank of Kenya (CBK) on lenders to pass the benefit of falling credit costs.
Most of the firms or 65 per cent have reported a reduction in commercial bank interest rates by up to two per cent in the May 2025 CEOs survey conducted by the apex bank last month.
The negligible drop in the cost of loans for the private businesses is despite the CBK implementing deep cuts on the benchmark lending rate (CBR) and warning banks of daily fines for failure to cut interest rates in line with approved risk-based pricing frameworks.
“More respondents reported [a decline in] bank loan rates in the May 2025 survey compared to March 2025 survey, indicative of banks transmitting the benefit of lower interest rates to their customers.”
“However, the declines were marginal, with most respondents reporting re and two per cent.”
Only 23 per cent of CEOs reported a reduction in bank lending rates by between two and three per cent while a lower 12 per cent reported cuts of more than three per cent.
CBK has cumulatively cut its benchmark rate by 3.25 per cent from 13 per cent in August last year to 9.75 per cent in June, in its attempt to force commercial banks to follow suit.
CBK embarked on physical inspection of banks in February to ascertain those who had complied with a directive to lower charges on loans in line with its approved risk-based credit pricing model.
Average commercial banks’ lending rates declined to 15.4 per cent in May 2025 from 15.7 per cent in April and 17.2 per cent in November 2024.
An analysis of individual banks interest rates by the Business Daily for April reveals that 13 banks raised their weighted average interest rates on customer loans even as borrowing costs in the economy trended lower.
The 13 commercial banks were Premier Bank, Co-operative Bank of Kenya, Habib Bank, CIB, Bank of India, Bank of Africa and Equity Bank Kenya.
Others to raise rates were DIB Bank, Consolidated Bank of Kenya, Kingdom Bank, HFC Limited, Absa Bank Kenya and Stanbic Bank.
The majority cut interest rates on customer loans during the month, aligning with the general trend of rates in the economy.
Commercial banks have faulted the current state of risk-based pricing for the sticky high interest rates arguing they have been unable to move rates lower as an industry given each lender has a different base lending rate.
The lenders have pushed for a review of the pricing regime but have differed with the CBK on the basis of the new benchmark.
CBK wants the new pricing framework to be anchored on the Central Bank Rate (CBR) but banks want it based on the interbank market rate and want the apex bank to allow the industry to freely set the risk premium added to the base.
Last week, CBK said it would imminently announce the new pricing regime after incorporating feedback from public participation.
“On the review of the risk based pricing model, we did have public participation and got a lot of comments from banks and individuals we are putting together all the comments to see what makes sense and we hope to have a revised version by next week and we will be coming back to the public on our proposal so that we can have a new risk-based pricing model that transits the monetary policy decisions much more effectively and sooner,” CBK Governor Kamau Thugge said.
