The Central Bank of Kenya (CBK) has warned commercial banks that failure to comply with its lending guidelines could result in penalties amounting to three times their profits.
This comes as CBK steps up efforts to push for lower lending rates following its continued monetary easing measures.
During its first Monetary Policy Committee (MPC) meeting of the year, CBK lowered the Central Bank Rate (CBR) from 11.25% to 10.75%, a 50-basis point cut aimed at reducing borrowing costs.
To ensure banks implement this directive, CBK has initiated on-site inspections to assess their adherence to the risk-based credit pricing model.
CBK Governor Kamau Thugge confirmed that five banks are currently under review, with findings expected in two weeks.
He warned that institutions found in violation of the directive would face strict penalties.
Thugge emphasized that banks have no reason to keep lending rates high if they follow the risk-based credit pricing model, adding that the new penalties would be three times the amount the banks have unlawfully profited from.
He expressed confidence that the reduction of both the CBR and the cash reserve ratio (CRR) would inject more liquidity into the banking sector, making credit more accessible.
He further noted that lower deposit costs for banks should allow them to offer cheaper loans, leading to increased consumer spending and investment.
“As demand for loans rises, we expect economic growth to accelerate. That’s why we have revised our growth projection from 4.6 percent in 2024 to 5.4 percent,” said Thugge.
Additionally, CBK has written to over ten banks, directing them to increase their core capital to over Sh.3 billion.
