NAIROBI, Kenya — A high-stakes regulatory standoff is intensifying between the Central Bank of Kenya (CBK) and the country’s commercial lenders following a directive that fundamentally alters how interest rates are adjusted.
At the heart of the dispute is a February 20 mandate from the CBK ordering banks to implement lending rate cuts “immediately” in response to the benchmark Central Bank Rate (CBR) reductions, while simultaneously shifting the authority for rate approvals from the regulator back to the National Treasury.
The Immediate Mandate
In a letter addressed to bank chief executives, the CBK clarified that rate adjustments resulting from its monetary policy decisions—specifically the February 10 cut of the CBR to 8.75%—must be passed on to consumers without delay.
“CBK wishes to clarify that lending rate adjustments arising from CBK’s discharge of its constitutional mandate should take effect immediately and are not subject to any notice,” the regulator stated. The order specifically targets all new loans issued since December 1, 2025, and existing loans already transitioned to the Risk-Based Credit Pricing Model.
The move follows repeated accusations by the regulator that banks have been slow to lower costs for borrowers despite ten consecutive cuts to the benchmark rate, allegedly prioritizing profit margins over economic stimulation.
The Statutory Deadlock
The Kenya Bankers Association (KBA) has formally pushed back, citing a direct conflict between the CBK’s “immediate” order and existing property laws. In a March 4 response, the KBA argued that Section 84 of the Land Act mandates a minimum 30-day written notice to borrowers before any interest rate change can be applied, even if those changes were contractually agreed upon.
“The industry is concerned that immediate pass-through without statutory notice may expose institutions to legal risk,” the KBA stated, suggesting that compliance with the CBK could paradoxically lead to a wave of litigation from consumers.
The Shift to the Treasury
Adding to the complexity is a significant shift in the approval process for interest rate hikes. For nearly two decades, banks sought the “nod” of the CBK Governor based on a 2006 legal notice by then-Finance Minister Amos Kimunya. However, recent High Court rulings involving Stanbic Bank and the now-defunct Spire Bank have declared that delegation of power invalid.
The courts ruled that while a Cabinet Secretary (CS) can delegate authority, they cannot delegate the ultimate statutory responsibility. Consequently, Section 44 of the Banking Act—which requires the “prior approval of the Minister” for any increase in banking charges—has been strictly reinstated.
Financial and Administrative Fallout
The legal precedent has sent shockwaves through the sector. Stanbic Bank was previously ordered to refund a customer over Sh10 million for unauthorized rate hikes, raising fears that the industry could face refund claims totaling billions of shillings for “illegal” loan charges collected without the Treasury CS’s express consent.
To mitigate administrative chaos, the KBA is now lobbying for a “blanket approval” mechanism from the Treasury, rather than requiring each of the country’s dozens of lenders to seek individual consent for every adjustment.
Market Implications
The CBK’s aggressive stance on the “immediate” pass-through of the CBR cut to 8.75% is part of a broader strategy to stimulate private sector credit growth. However, as lenders seek clarity on timelines and documentation for Treasury approvals, the friction between consumer protection, statutory law, and monetary policy efficiency remains unresolved.
As of March 5, 2026, the banking industry remains in a state of “administrative uncertainty,” waiting for a formal procedure that satisfies both the CBK’s urgency and the Treasury’s newfound oversight role.
