Most commercial banks in Kenya reduced their lending rates in December 2024, following a benchmark rate cut by the Central Bank of Kenya (CBK), according to official data. This adjustment passed benefits to borrowers, aligning with the CBK’s strategy to stimulate the economy, which has seen low inflation and a stable shilling.
However, 14 lenders increased their lending rates slightly, with one maintaining its margins, defying the CBK’s call to reduce rates. At the same time, demand for government securities remained high due to their guaranteed returns, as banks balanced investment returns in a market still dealing with a high level of non-performing loans (NPLs).
According to CBK data, the gross NPL ratio stood at 16.5% in October 2024, a slight improvement from 16.7% in August. The ratio is estimated to have remained at 16.5% in December.
Overall Lending Rates Decline
Despite some lenders raising rates, the overall lending rate dropped from 17.22% in November to 16.89% in December. All three banking tiers were represented in the reductions, with depositors also benefiting from a slight increase in deposit rates. The average deposit rate rose to 10.45% from 10.41%.
In December, the CBK’s Monetary Policy Committee (MPC) reduced the benchmark rate to 11.25%, its lowest level in 12 months, down from 12%. CBK Governor Kamau Thugge urged banks to lower their lending rates, stating, “The MPC urges banks to take necessary steps to lower their lending rates in order to stimulate credit to the private sector and thereby drive more economic activity.”
Cheapest Lenders in 2024
Small banks offered the most affordable loans for the seven months leading up to December 2024. Some of the lower-tier banks with the cheapest lending rates included:
- Access Bank – 11.46%
- Premier Bank – 12.43%
- Consolidated Bank – 13.46%
- Kingdom Bank – 14.11%
Among the top-tier banks, Diamond Trust Bank (DTB) and Co-operative Bank of Kenya offered the cheapest loans for most of 2024, with rates of 12.39% and 15.18% in July. By December, their lending rates had increased to 16.80% and 16.90%, respectively.
In December, the following tier-one banks had the lowest lending rates:
- Stanchart – 15.28%
- Stanbic – 15.36%
- Equity – 16.07%
- DTB – 16.80%
- Family Bank & KCB – 16.86%
- Co-op & NCBA – 18.04%
- ABSA – 18.95%
The banks with the highest lending rates included:
- HFC – 20.17%
- Commercial International Bank (CIB) Kenya – 20.20%
- Credit Bank – 20.41%
- Middle East Bank – 22%
Deposit Rates and Treasury Bills
On deposit rates, the following banks offered the most competitive returns:
- African Banking Corporation – 14.78%
- Credit Bank – 14.68%
- Kingdom Bank – 14.39%
The weighted average deposit interest rate in 2024 ranged from 10.77% to 11.48%.
Treasury Bills (T-bills) remained highly attractive, with projections for 2025 indicating:
- 91-day bills – 13.51%
- 182-day bills – 13.91%
- 364-day bills – 14.54%
These returns could rise above last year’s 16% average, based on recent auction trends.
Calls for Further Rate Cuts
The Kenya Bankers Association (KBA) called for a further reduction in the CBK’s benchmark rate ahead of the upcoming MPC meeting, citing low inflation and the need to stimulate borrowing and economic growth.
However, KBA also acknowledged that banks are struggling with a high volume of unpaid loans, which makes it harder to lower interest rates further.