KCB Bank has announced a reduction in its base lending rate from 15.6% to 14.6%, effective 10 February 2025. This decision aligns with the Central Bank of Kenya’s (CBK) recent monetary policy adjustments aimed at stimulating economic activity.
“In view of the recent adjustments of the Central Bank Rate (CBR) and Cash Reserve Ratio (CRR) by the Central Bank of Kenya, KCB Bank Kenya wishes to notify our customers and the public that we have reduced our base lending rate from 15.6% to 14.6% per annum. This reduction takes effect from February 10, 2025.” KCB Said in a statement.
The CBK recently lowered the benchmark lending rate from 11.25% to 10.75% and reduced the cash reserve ratio from 4.25% to 3.25%, injecting approximately KSh 73.7 billion into the economy. These measures are intended to enhance liquidity and make credit more accessible to both businesses and individuals.
KCB Bank emphasized that the final lending rate for customers will be determined by adding a customer-specific margin to the new base rate, in accordance with the bank’s Risk-Based Credit Pricing Model. This adjustment applies to all existing and new Kenya shilling-denominated facilities, excluding fixed-rate credit facilities.
“The final lending rate is based on a customer-specific margin, adjusted to the base rate, in line with the approved Risk Based Credit Pricing Model. This applies to all existing and new KShs-denominated facilities and excludes fixed-rate credit facilities.” The Bank added.
The Central Bank of Kenya (CBK) had announced plans to commence on-site inspections of commercial banks to ensure lending rates reflect recent CBK monetary policy adjustments. This move comes amid concerns that high interest rates are stifling credit demand and impeding economic growth.
The reduction in lending rates comes at a time when private sector credit growth has been declining. In December 2024, private sector credit growth reached its lowest level in 22 years, a trend attributed to the high cost of borrowing. Elevated interest rates have made it challenging for businesses to secure financing for expansion and for individuals to access affordable credit.
CBK’s Monetary Policy Committee (MPC) recently noted a significant slowdown in credit growth due to elevated lending rates. According to data from December, growth in local currency-denominated loans stood at just 2.1%, while foreign currency-denominated loans—comprising approximately 26% of total loans—contracted by 11.4%.
Mobile loans continued to dominate Kenya’s credit market, representing 52.79% of all active loan accounts with a total outstanding balance of Sh158.8 billion. TransUnion Kenya’s Q1 2024 Market Report revealed that 3.92 million new mobile loan accounts were opened, marking an 11.02% increase from the previous quarter.
KCB’s move to lower lending rates may encourage other financial institutions to implement similar reductions, potentially easing the financial burden on borrowers. Industry analysts suggest that if more banks follow suit, it could revitalize private sector borrowing, fostering investment and consumption critical for economic recovery.
The Kenyan banking sector faces the challenge of balancing risk management with the need to support economic activities, especially as businesses recover from global economic disruptions. While KCB’s rate cut aims to make credit more affordable, banks remain cautious about lending to higher-risk borrowers, particularly in sectors that have faced repayment challenges in recent years.
Borrowers grappling with expensive loans amid inflationary pressures and slow business growth are likely to welcome this development. However, financial experts caution that the overall impact of the rate cut will depend on how many other banks adjust their rates and whether businesses and individuals feel confident enough to take on new debt in the current economic climate.
The CBK’s monetary policy adjustments and subsequent actions by commercial banks like KCB are part of broader efforts to stimulate economic growth by making borrowing more affordable.
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