Banks face daily penalties from CBK over unchanged loan rates

The Central Bank of Kenya (CBK) is set to enforce new measures starting in June, targeting banks that have not complied with its directive to lower loan interest rates.

Banks found to have failed to reduce their charges will face daily fines, a penalty aimed at ensuring the benefits of the CBK’s benchmark rate cuts reach borrowers.

CBK Governor Kamau Thugge revealed that inspections of commercial banks began in February, with 13 banks already reviewed.

The regulator expects to complete its review of all 38 commercial banks by the end of June.

"So far, we have inspected 13 banks, and we expect to complete visits on all 38 banks by the end of June," Thugge said.

The final decision on penalties will be made after discussions with the boards of the institutions that have completed inspections.

The inspections follow reports that many banks had not passed on the rate cuts made by the CBK.

The CBK had reduced the central bank rate (CBR) from 13% to 10%, yet 14 of 38 commercial banks had not adjusted their loan rates to reflect the cuts as of February.

A few banks, including Citibank, Absa Bank, and Standard Chartered, had complied with the CBR adjustments.

The penalties for banks failing to comply could be severe.

According to the Banking Act, non-compliant banks could face a fine of up to Sh20 million, or three times the amount they gained from higher interest rates.

Additionally, daily penalties of up to Sh100,000 per instance will be levied, with banking executives potentially facing a Sh1 million fine.

In response to sluggish private sector credit growth, the CBK has further eased its monetary policy.

This includes reducing the benchmark lending rate from 10.75% to 10% and narrowing the range of interest rates in the interbank market. However, the expected boost to lending has yet to materialize.

The looming fines signal the CBK's firm stance on ensuring that commercial banks comply with its directives.