{"id":112479,"date":"2025-03-25T17:04:28","date_gmt":"2025-03-25T17:04:28","guid":{"rendered":"https:\/\/chezaspin.com\/blog\/index.php\/2025\/03\/25\/cbk-warns-banks-against-high-lending-rates-threatens-heavy-penalties\/"},"modified":"2025-03-25T17:04:28","modified_gmt":"2025-03-25T17:04:28","slug":"cbk-warns-banks-against-high-lending-rates-threatens-heavy-penalties","status":"publish","type":"post","link":"https:\/\/chezaspin.com\/blog\/cbk-warns-banks-against-high-lending-rates-threatens-heavy-penalties\/","title":{"rendered":"CBK Warns Banks Against High Lending Rates, Threatens Heavy Penalties"},"content":{"rendered":"

NAIROBI, Kenya Mar 25 \u2013 The Central Bank of Kenya (CBK) has warned commercial banks against failing to lower interest rates in line with monetary policy adjustments under the Risk-Based Credit Pricing Model (RBCPM).<\/strong><\/p>\n

Appearing before the National Assembly Finance Committee, CBK Governor Kamau Thugge said the regulator has launched onsite inspections to ensure compliance after reducing the lending rate to 10.75 percent to spur business growth.<\/p>\n

Banks found to be maintaining excessive lending rates despite lower costs of funds will face severe penalties, including fines amounting to three times their unjust gains.<\/p>\n

\u201cWe are conducting onsite inspections to determine if the cost of funds for banks has gone down. If it has, then we expect lending rates to follow suit,\u201d Thugge stated.<\/p>\n

\u201cIf banks are found to be profiting unfairly by not adjusting rates downward, they will face penalties equal to three times their unjust gains, as provided under the Business Laws (Amendment) Act.\u201d<\/p>\n

Thugge noted that while banks quickly raise lending rates when the Central Bank Rate (CBR) increases, they are slow to reduce them when monetary policy is eased.<\/p>\n

Government Borrowing Impact<\/strong><\/h3>\n

The CBK Governor also highlighted the government\u2019s rising domestic borrowing as a key factor affecting lending rates, arguing that it is crowding out private sector access to credit.<\/p>\n

\u201cWhen we started this financial year, before the Finance Bill was withdrawn, the projected net domestic borrowing was slightly below KSh 400 billion. That figure later increased to KSh 430 billion, and with the second supplementary budget, it has now risen to KSh 584 billion,\u201d he said.<\/p>\n

He explained that commercial banks prefer lending to the government\u2014considered a risk-free borrower\u2014rather than private businesses that already struggle with high levels of non-performing loans.<\/p>\n

\u201cIf banks have a choice between lending to the government, which does not default, and lending to the private sector, which has elevated non-performing loans, it\u2019s an easy decision for them,\u201d Thugge said.<\/p>\n

He also attributed the slow decline in lending rates to increased competition for deposits, as banks struggle to attract funds amid a favorable investment climate for government securities.<\/p>\n

The introduction of the Central Securities Depository (CSD) has made it easier for Kenyans to invest in Treasury bills and bonds, reducing banks\u2019 access to cheap deposits and affecting lending rates.<\/p>\n

MPs Demand Legislative Action<\/strong><\/h3>\n

Members of Parliament urged legislative measures to ensure reductions in the CBR are directly reflected in commercial lending rates, amid concerns that banks are slow to pass on the benefits to borrowers.<\/p>\n

Finance Committee Chair Kimani Kuria criticized CBK for not proposing stronger protections for the private sector, saying, \u201cWhere do we leave the private sector when the government is competing for loans with businesses? We wish you had said you will protect the private sector despite these issues.\u201d<\/p>\n

Homa Bay Town MP Peter Kaluma questioned what legal steps Parliament could take to make interest rate reductions mandatory.<\/p>\n

\u201cWhat kind of legislative intervention should Parliament put in place to mandate that whenever we have these reductions, they are reflected in commercial rates?\u201d he asked.<\/p>\n

Rachuonyo MP Okuome Adipo warned that high interest rates disproportionately affect small and medium enterprises (SMEs) seeking capital.<\/p>\n

\u201cThose who are poor will be disadvantaged due to higher lending interest, which will increase borrowing costs,\u201d he noted.<\/p>\n

Butula MP Joseph Oyula raised concerns about the government\u2019s heavy domestic borrowing, arguing that it pushes up interest rates for businesses and individuals.<\/p>\n

\u201cThe government\u2019s appetite to borrow domestically will affect lending rates. Treasury and CBK should sit down and look for ways to reduce the repayment interest on Treasury bills and lower borrowing appetite. It\u2019s healthier to borrow externally than domestically,\u201d he said.<\/p>\n

CBK Opposes Interest Rate Caps<\/strong><\/h3>\n

Governor Thugge cautioned against reintroducing interest rate caps, arguing that past attempts led to credit rationing, especially for SMEs and high-risk borrowers.<\/p>\n

\u201cIf we don\u2019t control fiscal consolidation, we will not be able to control interest rates. If we try to cap credit, we will end up rationing it, locking out the disadvantaged,\u201d he warned.<\/p>\n

CBK is finalizing a new risk-based pricing model for loans within the next two weeks to improve interest rate transmission. The model will incorporate international best practices while adapting to Kenya\u2019s economic conditions.<\/p>","protected":false},"excerpt":{"rendered":"

NAIROBI, Kenya Mar 25 \u2013 The Central Bank of Kenya (CBK) has warned commercial banks against failing to lower interest rates in line with monetary policy adjustments under the Risk-Based Credit Pricing Model (RBCPM). Appearing before the National Assembly Finance Committee, CBK Governor Kamau Thugge said the regulator has launched onsite inspections to ensure compliance […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-112479","post","type-post","status-publish","format-standard","hentry","category-uncategorized","entry"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/posts\/112479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/comments?post=112479"}],"version-history":[{"count":0,"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/posts\/112479\/revisions"}],"wp:attachment":[{"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/media?parent=112479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/categories?post=112479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chezaspin.com\/blog\/wp-json\/wp\/v2\/tags?post=112479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}