• The Central Bank of Kenya (CBK) has cut its base lending rate from 12.75% to 12% in October 2024
• Commercial banks changed their lending rate to align with the central bank base rate (CBR)
• Acting Chief Executive Officer (CEO) of the Kenya Bankers Association (KBA), Reimond Molenje, explained to TUKO.co.ke that the reduction in the CBR will lead to a progressive decrease in the rate of various bank rates.

TUKO.co.ke Journalist Wycliffe Musalia has over five years of experience in the financial field, businesstechnology and climate reporting, which provides deep insights into Kenyan and global economic trends.

Commercial Bankings are reviewing their loan interest rates after the Central Bank of Kenya (CBK) cut its central bank rate (CBR).

CBK reduced CBR from 12.75% reported in August 2024 to 12% in October 2024.

Why commercial banks in Kenya are cutting rates

The regulator attributed the decline to a sharp decline in credit to the private sector and sluggish growth in the second quarter of 2024.

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“The Monetary Policy Committee (MPC) noted the sharp deceleration in credit to the private sector and the slowdown in growth in the second quarter of 2024 and concluded that there is scope for further easing of monetary policy to support economic activity while ensuring exchange rate stability of exchange,” said CBK Governor Kamau Thugge.

Speaking exclusively to TUKO.co.keActing Chief Executive of the Kenya Bankers Association (KBA), Raimond Molenje, explained that the reduction in the CBR will lead to a progressive decrease in the rate of various banks.

“Banks have risk-based credit frameworks that have been approved by the CBK and with the downward adjustment of the CBR, we will gradually start to see this monetary policy being transmitted through the market,” Molenje said.

Which banks have reduced their loan interest rate?

Conformable CBK commercial banks’ weighted average ratesthe weighted average interest rate on commercial bank loans reached 16.91% in September, up from 16.84 reported in August 2024.

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The following are the commercial banks that offer loans below this weighted rate:

Source: CBK report

Meanwhile, other commercial banks continue to offer loans above the weighted interest rate of 16.91%

These are Standard Chartered Bank (17.75%), Absa Bank (20.02%), Middle East Bank (21.52%), I&M (18.24%) and Stanbic (19.36%).

Will banks continue to lower loan rates?

In October 2024, NCBA announced a reduction in its lending rate from 19.22% to 16.91% for shilling loans and 11.09% for dollar loans.

Banks are expected to continue cutting their lending rates after two successive Central Bank Rate (CBR) cuts from a maximum of 13% to 12%.

According to Business Daily, KBA President and Chief Executive Officer (CEO) of NCBA Bank, John Gachora, has confirmed a scheduled meeting between CBK and CEOs of commercial banks on further rate cuts.

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Equity bank CEO James promised to lower the interest rate for customer loans after the Central Bank of Kenya (CBK) cut the base lending rate to 12%.

“We are proud to offer the most affordable interest rates among Tier 1 banks in Kenya. We have chosen to stand with our customers by absorbing the costs rather than passing them on. As we look ahead, we are committed to easing the burden on households and businesses In the next few days, we will announce the second interest rate cut to encourage credit take-up,” Mwangi said.

How banks charged loans in July 2024

The Central Bank of Kenya has released new data showing that Kenyan bare granted with the cheapest and highest loan rates over a period of five years.

The report revealed that Premier Bank Limited had the cheapest rate at 9%, while Middle East Bank Limited recorded the highest rate (20.96%).

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The rate of non-performing loans (NPLs) has risen, with most Kenyans unable to repay their debt due to tough economic conditions.

What you need to know about loans in Kenya

SACCOs saw a year-on-year increase of 9.3% in credit disbursements for the third quarter of 2024, while bank credit growth fell to 1.3% in August.

Experts blamed government borrowing raised on the local market for the increase in interest rates as banks grapple with bad loans.

Source: TUKO.co.ke