Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Banks face daily fines from June on CBK rate purge
The Governor of the Central Bank of Kenya (CBK) Dr Kamau Thugge when he appeared before the Finance and National Planning Committee chaired by Kuria Kimani at the Bunge Tower in Nairobi on March 25, 2025.
The Central Bank of Kenya (CBK) will from next June slap daily fines on banks that denied borrowers lower interest chargers despite successive cuts on its indicative lending rate.
The apex bank embarked on the physical inspections in February to ascertain those that had complied with a directive to lower charges on loans in line with its approved risk-based credit pricing model.
The CBK says it will complete inspections in June before punishing banks found to be in contravention of the lending rate 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 told a media briefing on Wednesday.
“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 lenders had failed to lower their loan rates in line with its trim on benchmark interest rates which started in August last year.
As of February, 14 of 38 commercial banks were yet to cut their interest rates to borrowers despite deep cuts to the central bank rate (CBR) from a high of 13 percent.Only five banks had reduced interest rates by a margin equal to or greater than the 2.25 percentage points chop in the benchmark lending rate by the CBK as of the end of February including Citibank NA Kenya, Absa Bank, Standard Chartered Bank Kenya, Victoria Commercial Bank and Stanbic Bank Kenya.
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 stand to be slapped with an additional daily penalty of up to Sh100,000 for every case with banking executives liable for a Sh1 million fine. CBK is expected to impose any punishment to banks on section 55 of the Banking Act.
“The penalties prescribed shall not exceed twenty million shillings in the case of an institution or three times the gross amount of the monetary gain made, or… one million shillings in the case of a natural person,” says the Act.
“The central bank may, in regulations, prescribe additional penalties not exceeding one hundred thousand shillings in each case for each day or part thereof during which such failure or refusal continues.”
On Tuesday, the CBK noted that average lending rates have continued to decline, albeit slowly but private sector credit growth is yet to recover.
The apex bank eased its monetary policy further to stimulate lending by banks to the private sector including cutting its benchmark lending rate from 10.75 percent to 10 percent and reducing the range of interest rates in the interbank market from 1.5 percentage points to 0.75 percentage points.
The CBK further trimmed the penalty charged on its emergency borrowing window for banks from three percentage points above the CBR to 0.75 percent.
The rare triple cut is expected to encourage cheaper borrowing costs by reducing banks' cost of funds.
Commercial banks have moved to cut their interest rates further after Tuesday’s policy decision with KCB for instance lowering its internal base lending rate from 14.6 percent to 13.85 percent, effective from April 11 for new loans and May 11 for existing facilities.
