Five commercial banks raised interest rates in March, defying expectations of cuts and putting lenders on a collision course with the regulator, which has threatened daily fines for banks that deny borrowers lower interest charges.
The overall weighted average lending rates of Access Bank Kenya, ABC, DIB Bank Kenya, Kingdom Bank and Guardian Bank Limited went up in March, according to fresh data from the Central Bank of Kenya (CBK).
The increase in overall rates of the five banks comes against the backdrop of the CBK revealing that from next month, it will start imposing daily fines on banks denying borrowers lower rates despite successive cuts in its benchmark lending rate.
Access Bank Kenya's overall weighted average lending rate rose to 20.5 percent in March 2025 from 20.39 percent in February, while the African Banking Corporation Limited (ABC) had its rates rise to 17.54 percent from 17.42 percent in the same period.
DIB Bank Kenya Limited saw its average lending rate rise to 17.07 percent from 16.58 percent, Kingdom Bank rates hit 14.42 percent from 14.28 percent, while Guardian Bank Limited rates rose to 13.94 percent from 13.68 percent.
All other commercial banks cut their lending rates in March except for Consolidated Bank of Kenya whose rates remained unchanged at 13.31 percent.
The CBK started physical inspections of banks in February to ascertain whether lenders have complied with a directive to reduce lending charges on loans in line with their risk-based credit pricing models.
Last month, the CBK said it would complete the inspections in June before penalising banks found to be in contravention of the rates directive.
“So far, we have inspected 13 banks, and we expect to complete visits on all 38 banks by the end of June,” CBK Governor Kamau Thugge said on April 9.
“We will soon start having discussions with the boards of institutions with complete inspections. Following that, decisions would be made as to what kind of penalties, if any, that will be brought on board.”
CBK began the probe on banks after establishing that some commercial banks had failed to lower their loan rates in line with the trimming of its benchmark, which commenced in August 2024.
So far, the CBK has established that some banks have failed to apply risk-based pricing as agreed, including failing to implement the framework for facilities such as mobile loans, cash backed credit, facilities under funded schemes and those under government-to-government arrangements.
Banks face fines of Sh20 million or three times the monetary gain realised from failing to pass on lower borrowing costs to customers with the regulator largely leaning on the punitive penalty.
Lenders also risk additional daily penalties of up to Sh100,000 per case, with bank executives liable for a Sh1 million fine.
Punishment of banks that fail to comply with CBK directives is guided by Section 55 of the Banking Act.
Lending cuts
The CBK further reduced its policy rate in April from 10.75 percent to 10 percent in an effort to further anchor lower commercial bank lending rates.
The quest for lower lending rates follows appeals by commercial banks for a review of the risk-based pricing framework, after it was deemed ineffective in bringing down the cost of credit to customers.
Commercial banks have clashed with the CBK over the regulator's proposal to base interest rates on the CBR plus a premium dubbed "K". Banks, on the other hand, are rooting for the benchmark to be the interbank rate plus a free hand to determine the premium.
Banks have argued that customers with high credit risk, such as low-income individuals and small businesses, will not have access to credit if they are denied a free hand in pricing loans.
“CBK will review each bank’s proposed premium ‘K’ before rollout and determine both the base rate and the premium ‘K’ (interest rate capping). The proposed interest rate capping by CBK is not supported in law and would have the effect of reducing lending to Kenyans and businesses, especially MSMEs as experienced between 2016 and 2019 when the interest rate capping law was in place,” the Kenya Bankers Association (KBA) said in a note last week.
The apex bank has rejected the use of the interbank lending rate in forming the industry loan rate benchmark, deeming it volatile during periods of tight liquidity in the market. CBK also noted that not all banks participate in interbank lending.
