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Banks lower lending rates in wake of Central Bank rate cut

DTB and Co-op Bank extended the cheapest loans among top tier lenders last year.

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by MARTIN MWITA

Business30 January 2025 - 08:59
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In Summary


  • Some 14 lenders however slightly adjusted their lending rates upwards with one retaining its margins, defying CBK’s calls to lower rates.
  • This, even as appetite for government securities remained high amid guaranteed returns as banks continued to balance returns on investment, in a market that is still experiencing high Non-Performing Loans.

A Co-operative Bank branch in Nairobi /FILE


Most commercial banks in the country reduced their lending rates in December 2024 in line with the Central Bank of Kenya’s benchmark rate cut, official data shows, passing benefits to borrowers.

This comes as the Kenya Bankers Association (KBA) calls for a futher cut ahead of next week’s Monetary Policy Committee meeting.

Latest data by CBK shows 23 of the 38 commercial banks in the market reduced their lending rates between November and December, as the apex bank reduced the Central Bank benchmark lending rate to stimulate the economy, a move that came with low inflation and stable shilling.

Some 14 lenders however slightly adjusted their lending rates upwards with one retaining its margins, defying CBK’s calls to lower rates.

This, even as appetite for government securities remained high amid guaranteed returns as banks continued to balance returns on investment, in a market that is still experiencing high Non-Performing Loans.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 16.5 per cent in October 2024 compared to 16.7 per cent in August, and is estimated to have averaged around 16.5 per cent in December.

Overall lending rates however went down to 16.89 per cent in December from 17.22 per cent in December, with all three tiers well represented in the rate cuts, with banks also giving depositors a slight gain on deposits as the average rate went up to 10.45 per cent, from 10.41 per cent.

In December, the MPC, which is CBK’s top decision-making organ reduced the benchmark rate to a 12-month low of 11.25 per cent from 12 per cent.

“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates in order to stimulate credit to the private sector and thereby stimulate more economic activity,” CBK governor Kamau Thugge who chairs the committee had said.

Small banks have however been extending cheaper loans for the seven months to December, CBK data shows.

Some of the lower tier banks with cheapest loans include Access Bank ( 11.46%), Premier Bank ( 12.43%), Consolidated Bank ( 13.46%) and Kingdom Bank whose lending rate stood at 14.11 cent in December, as SMEs remained the biggest beneficiaries.

Diamond Trust Bank and Co-operative Bank of Kenya extended the cheapest loans among top tier lenders for the better part of last year recorded at 12.39 and 15.18 per cent in July.

The two closed December with average lending rates of 16.80 per cent and 16.90 per cent as per CBK.

Stanchart Bank however lowered its lending rates to 15.28 per cent in December after the CBR cut to lead the tier one lenders with the cheapest credit during the month, followed by Stanbic ( 15.36%), Equity ( 16.07%), DTB, Family Bank ( 16.86%), KCB ( 16.86%), Cop-op and NCBA ( 18.04 ) and ABSA ( 18.95%). HFC ( 20.17%), Commercial International Bank (CIB) Kenya ( 20.20%), Credit Bank ( 20.41%) and Middle East Bank ( 22%) have the highest lending rates.

On deposit rates, African Banking Corporation, Credit Bank and Kingdom Bank have the best rates on deposit at 14.78 per cent, 14.68 per cent and 14.39 per cent, respectively.

In 2024, the weighted average interest rate on deposits in Kenya’s commercial banks ranged from 10.77 per cent to 11.48 per cent.

Meanwhile, Treasury Bill (T-bill) remain attractive and are projected to have high returns in 2025 at around 13.51 per cent for 91-day bills, 13.91 per cent for 182-day bills and 14.54 per cent for 364-day bills, based on the most recent auction results, with posibilities of rising to above the 16 per cent average for last year.

Yesterday, KBA’s Centre for Research on Financial Markets and Policy called for a further reduction in the CBR to encourage borrowing and support economic growth citing low inflation.

However, it also points out that banks are struggling with a high volume of unpaid loans, which is making it harder to lower interest rates and increase lending.

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