The Central Bank of Kenya (CBK) fined a record 33 commercial banks for defying the regulator’s calls to cut their loan rates in line with the reduced benchmark rate, denying borrowers cheaper credit.
The penalties followed on-site inspections of all 38 commercial banks, after which the CBK cracked the whip to force lenders to match their lending rates to the reduced Central Bank Rate (CBR).
The CBK did not disclose the identity of the banks in breach of the Banking Act provisions or the fines slapped on the 33 lenders, which represent 86.8 percent of the industry.
The apex bank said it took unspecified administrative actions on two other banks, while only three were fully compliant with the risk-based credit pricing model (RBCPM).
Between August 2024 and August 2025, the CBK cut the benchmark rate or CBR seven times by 3.5 percentage points to 9.5 percent from a 22-year high of 13 percent that lasted for about seven months.
Only six lenders — Citibank N.A Kenya, Absa Bank Kenya, Credit Bank, Standard Chartered Bank Kenya, Stanbic Bank Kenya and Victoria Commercial Bank — cut their overall lending rates to match or exceed the benchmark.
The banking regulator last year repeatedly put pressure on banks to lower borrowing costs and match cuts in the benchmark rate while threatening daily fines.
“CBK conducted target inspections in 2025 on the implementation of the RBCPM rolled out in 2019 by all commercial banks. Following the inspections, penalties were levied on 33 banks, and administrative actions were taken on two banks,” the CBK said in its latest annual banking supervision report.
The penalties on credit pricing breaches raised the number of commercial banks in violation of the Banking Act and CBK Prudential Guidelines in the year ended December 31, 2025 to 35, compared to 11 previously.
CBK Governor Kamau Thugge accused banks of failing to cut loan rates even after the CBR was trimmed from 13 percent in August 2024 to 10.75 percent in February 2026.
This triggered on-site inspections of banks up to June 2025 by the CBK to review the movement of lending rates.
Banks faced fines of Sh20 million or three times the monetary gain made from ‘overcharging’ borrowers, with the regulator leaning on the punitive penalty.
The banks also risked additional daily penalties of up to Sh100,000 for every case or implication for each loan account, with the executives liable for a Sh1 million
“The (Monetary Policy) Committee observed that the CBR had been lowered substantially since August 2024, yet lending rates have only declined marginally,” Dr Thugge said in February last year.
“Under the amendments to the Banking Act, any bank that has not passed on the benefits of reduced cost funds to reduce lending rates will be penalised in accordance with the law.”
Bank profits surged as they passed the higher interest rates on to borrowers far more quickly than to savers.
Another 24 banks cut interest rates in the year to August last year, but did not match the benchmark rate after trimming their borrowing costs by between 0.09 percentage points and 2.82 percentage points, CBK data shows.
Some banks reckoned they had locked in deposits used for loans at higher rates, arguing that the costly savings had slowed efforts to lower borrowing costs.
The high cost of borrowing at the time was deemed to have discouraged borrowers from taking out loans in a setting where the demand for products had become sluggish, prompting firms to freeze hiring and expansion plans.
Banks initially challenged the risk-based pricing model, arguing that it had left the industry unable to match the CBK’s rate without a standard benchmark from which to price loans.
The back-and-forth exchange between banks and the CBK culminated in the overhaul of the RBCPM, introducing a single industry benchmark underpinned by either the CBR or the overnight interbank rate, which was renamed the Kenya shilling overnight interbank average (Kesonia).
Commercial banks began implementing the revised framework on new loans from December 2025, while existing loans were fully transitioned to the revamped model at the end of February 2026.
Improvements in the monetary policy framework have seen the reunification of both the CBR and Kesonia at 8.75 percent presently, resulting in a single rate from which banks price their loans.
Banks add a risk premium, fees, and charges to the benchmark.
The average lending rate by commercial banks has fallen at a relatively faster pace since the overhaul of the RBCPM to 14.3 percent in July 2026 from 14.4 percent in June and 17.2 percent in November 2025, even after the CBK paused rate cuts in February this year.
Private sector credit growth has also recovered to reach double digits in June and July this year for the first time since February 2024.
The CBK, however, says it has been unable to fully implement the new risk-based credit pricing framework following the fallout from the Middle East conflict, which has forced pauses to additional CBR cuts.
The revised model came to full effect in March this year, matching the CBK’s wait-and-see policy stance, which has left the CBR unchanged at 8.75 percent.
“Unfortunately, we did not get to use this framework when we were easing because the crisis in the Middle East intervened. We are now in a wait-and-see situation,” Dr Thugge said last week.
