Tuesday, 1 April, 2025
Finance Committee presses CBK and bankers on interest rates and banking regulations ๐๐ฎ๐ง๐ ๐ ๐๐จ๐ฐ๐๐ซ, ๐๐๐ข๐ซ๐จ๐๐ข ๐๐ฎ๐๐ฌ๐๐๐ฒ ๐๐๐ซ๐๐ก ๐๐, ๐๐๐๐
The Departmental Committee on Finance and National Planning today engaged the Central Bank of Kenya (CBK) Governor Dr. Kamau Thugge and the Kenya Bankers Association (KBA) on critical issues surrounding interest rates and banking regulations.
Dr. Thugge addressed the Committee regarding the recent reduction of the Central Bank Rate (CBR) from 11.25% to 10.75% and the Cash Reserve Ratio (CRR) from 4.25% to 3.25%, decisions made during the Monetary Policy Committee (MPC) meeting on February 5, 2025.
He explained that these measures were aimed to inject liquidity into the banking sector, thereby lowering the cost of funds and ultimately, lending rates.
Despite the CBR reduction, Dr. Thugge acknowledged that commercial banks had yet to fully adjust their lending rates.
He stressed that banks are expected to pass on the benefits of reduced funding costs to borrowers, stimulating private sector credit growth and supporting economic activity.
He also retaliated to the Committee of the recent amendments to the Banking Act, which impose penalties on banks that fail to do so.
On their part, Committee Members raised concerns about the banking sector's compliance with the new Kshs. 10 billion core capital requirement, noting that only 24 out of 38 banks had met the deadline in December 2024.
Dr. Thugge responded that the CBK has mandated the remaining banks to submit board-approved capital buildup plans with clear timelines and milestones for compliance.
โMr. Chairman, we have asked these banks to submit board-approved capital buildup plans detailing specific measures, timelines, and milestones to achieve complianceโ, he explained.
Hon. Kimani Kuria (Molo), Chair of the Committee, commended the CBK for maintaining stable inflation and exchange rates.
However, the Committee emphasized the need for a balanced approach, urging the CBK to facilitate lower commercial bank interest rates without destabilizing the exchange rate.
The Committee Members also expressed concern over the contraction of private sector lending, warning of its potential to stifle economic growth and business expansion.
The Committee underscored the importance of banks aligning their lending rates with CBR changes, in line with international best practices.
In the afternoon session, the Kenya Bankers Association (KBA) led by CEO Mr. Raimond Molenje, addressed the Committee regarding the implementation of the CBR. The KBA reported a 2.2% reduction in commercial bank interest rates between November 2024 and March 2025, in response to the CBR adjustments. They also explained that banks typically provide a one-month notice to customers for rate changes, as mandated by the Consumer Protection Act and CBK Prudential Guidelines.
Committee Members led by Hon. Kimani however, pointed out the disparity in the speed of implementation.
โWhy is it that banks are quicker to raise rates than lower the?โ, he posed.
In response, the KBA committed to improved communication with the CBK post-MPC announcements to ensure fairer interest rate adjustments across the sector.
While addressing Hon. Kuria's inquiry regarding the implementation of the new $15,000 maximum withdrawal limit under the Anti-Money Laundering Act, the KBA confirmed compliance and highlighted their enhanced due diligence for new customers.
They also appealed to the Committee to address the issue of pending government bills, emphasizing the impact on entrepreneurs' loan servicing and overall bank liquidity.v