Commercial banks in Kenya have been gradually reducing their interest rates over the past six months, spurred by the Central Bank of Kenya’s (CBK) Monetary Policy Committee (MPC) lowering the benchmark Central Bank Rate (CBR). This move by the banks follows consistent reductions in the CBR and threats of penalties from the regulator for not passing on the benefits of lower loan rates to borrowers.

According to CBK’s monthly survey on average interest rates, some lenders have significantly reduced their loan costs between September 2024 and February 2025, while others have maintained relatively high rates, exceeding 20 percent. Citibank NA Kenya emerged as the cheapest lender in February, with an average loan interest rate of 12.78 percent, a notable decrease from 18.47 percent in September 2024. Consolidated Bank, a state-owned lender, also maintained low rates at 13.31 percent, consistent with its September rate of 13.41 percent. Stanbic Bank ranked as the third cheapest lender in February, offering loans at an average of 13.68 percent, down from 14.79 percent in September of the previous year. Kingdom Bank also substantially reduced its rates from 19.36 percent in September to 13.86 percent in February.

Other lenders with relatively lower loan rates include Guardian Bank at 14.08 percent, Paramount Bank at 14.28 percent, Standard Chartered at 14.90 percent, and UBA Kenya at 14.91 percent. Tier-one banks presented a mixed picture, with some reducing their rates while others increased them marginally, despite announcing significant reductions in their base lending rates in February. Equity Bank lowered its interest rate to 16.06 percent from 16.51 percent in September, while Co-operative Bank reduced its loan costs to 16.87 percent from 19.22 percent. Absa Bank Kenya reduced its rate to 17.25 percent from 17.60 percent, and NCBA Bank marginally lowered its rate to 18.58 percent from 18.59 percent. Conversely, KCB Group's average interest rate slightly increased to 16.82 percent in February from 16.02 percent in September.

Overall, lenders have reduced borrowing costs from a high of 17.23 percent in November to 16.41 percent in February, according to CBK data. The MPC cut the CBR to 10.75 percent from 11.25 percent in early February and has sustained reductions since August 2024. However, the central bank has expressed concern that banks remain reluctant to reduce interest rates adequately, which is negatively impacting the economy. The CBK has threatened to penalize non-compliant banks with fines of up to Sh20 million or three times any undue benefits accrued, as per the Business Laws (Amendment) Act 2024, which amended the Banking Act to introduce stiffer penalties.