Kenyan banks have been expanding their lending margins by reducing interest on deposits more quickly than on loans, allowing them to stay profitable despite shifting market conditions. Data from the Central Bank of Kenya (CBK) shows that the spread between lending and deposit rates has widened in recent months.
This margin, essentially the difference between what banks charge borrowers and what they pay savers is a key measure of profitability, shaped by factors like credit risk, operational expenses, and market trends.
Since August last year, when interest rates started declining, banks have been quicker to slash deposit rates than lending rates. In February 2025, the lending margin increased to 6.65 percent, compared to 6.59 percent in January and 6.44 percent in December.
This shift came as deposit rates dropped from 11.14 percent in August to 9.76 percent in February, while lending rates barely budged, falling from 16.84 percent to 16.41 percent.
Bank executives acknowledge that loan costs remain high, partly due to inconsistencies in how different lenders apply risk-based pricing. “Each bank uses a unique benchmark to determine interest rates, which limits adjustments in borrowing costs across the industry,” they explained. In response, banks and the CBK are discussing refining the risk-based loan pricing framework. The goal is to introduce a standardized benchmark that balances lending costs while considering funding expenses and borrower risk profiles