The Central Bank of Kenya (CBK) has warned commercial banks in the country to reduce their lending rates or risk facing serious financial penalties. The warning came from CBK Governor Kamau Thugge, who said some banks have refused to follow the new monetary policy changes made by the bank. He explained that those banks that continue to ignore the directive will face fines of up to 20 million Kenyan shillings or three times the amount they made from not following the order. In addition to that, banks could also be fined KES 100,000 every day until they comply.
This warning is coming after the CBK’s Monetary Policy Committee (MPC) reduced the Central Bank Rate (CBR) by 0.5 percentage points, bringing it down to 10.75 percent. The Cash Reserve Ratio (CRR) was also reduced from 4.25 percent to 3.25 percent. These changes were made to help create more money in the economy so that people and businesses can borrow at cheaper rates and invest more. The CBK said the idea is to boost the economy by making it easier for people to access credit.
However, despite these adjustments, many banks in Kenya have not lowered their interest rates as expected. Because of this, the CBK has started on-site checks at the banks to make sure they are following the rules of the Risk-Based Credit Pricing Model (RBCPM). Governor Thugge stressed that banks are expected to reflect the changes in their loan rates, so that the lower cost of borrowing reaches the people and helps grow the economy. He said banks must not block the flow of benefits meant for ordinary citizens and businesses.
So far, only a few banks have fully reduced their lending rates. These include Citibank NA Kenya, Standard Chartered Bank of Kenya, Victoria Commercial Bank, and Stanbic Bank Kenya. Other major banks like KCB Group and Co-operative Bank have only just announced plans to cut their loan rates, possibly as a result of the warning from CBK.
The CBK believes that if banks follow the new monetary policy, more businesses will be able to take loans and invest, leading to more jobs and faster economic recovery. Governor Thugge said the central bank will not hesitate to take action against any financial institution that refuses to cooperate. He added that the enforcement is necessary to make sure the goals of the policy are achieved and that Kenyans benefit from the efforts to strengthen the economy.
Analysts have said that for any policy to work, it is important for banks to play their part and help the economy grow. They also believe that the CBK’s strong stance could push more banks to reduce their rates in the coming weeks. As it stands, the CBK is watching closely, and banks have been urged to quickly align their practices with the directive or face the consequences.
