•Parliamentary Committee Grills CBK, Bankers Over Interest Rates and Financial Regulations
Nairobi, Kenya| The Central Bank of Kenya (CBK) Governor, Dr. Kamau Thugge, faced tough scrutiny from the Parliamentary Departmental Committee on Finance and National Planning over persistently high lending rates despite recent reductions in the Central Bank Rate (CBR).
The committee also raised concerns over transactions involving National Social Security Fund (NSSF) bonds, which have sparked fears of potential financial losses.
Dr. Thugge, appearing before lawmakers at Bunge Tower, defended CBK’s monetary policy decisions, outlining measures intended to ease borrowing costs and stimulate economic activity.
He highlighted the reduction of the CBR from 11.25% to 10.75% and the Cash Reserve Ratio (CRR) from 4.25% to 3.25%, implemented following the Monetary Policy Committee (MPC) meeting on February 5, 2025.
“These adjustments were meant to inject liquidity into the banking sector, lower funding costs, and encourage commercial banks to reduce lending rates,” Dr. Thugge explained.
However, lawmakers expressed dissatisfaction, arguing that banks had been slow to pass on these benefits to borrowers, hampering access to credit for businesses and individuals.
MPs Demand Accountability Over Lending Rates
The committee, led by Kimani Kuria (Molo), questioned why banks appeared quick to raise interest rates in response to CBR hikes but slow to lower them when the rate is reduced.
“Why is it that banks react swiftly to increase rates, but delay in reducing them when monetary policy changes in favor of borrowers?” Kuria asked.
Dr. Thugge assured the committee that CBK was monitoring the situation and expected banks to align their lending rates with monetary policy changes.
He also cited recent amendments to the Banking Act, which impose penalties on banks failing to reflect CBR reductions in their interest rates.
Concerns Over Banking Sector Compliance and Credit Access
The committee also raised concerns regarding banks’ compliance with the newly enforced Kshs. 10 billion core capital requirement.
Lawmakers noted that only 24 out of 38 banks had met the December 2024 deadline, potentially affecting financial stability and market competitiveness.
Dr. Thugge reassured MPs that CBK had directed non-compliant banks to submit board-approved capital buildup plans with clear milestones for achieving compliance.
“We have mandated these banks to present structured plans outlining specific measures and timelines to meet the capital threshold,” he stated.
The lawmakers also expressed alarm over a contraction in private sector lending, warning that reduced credit access could stifle business growth and economic expansion.
They emphasized the importance of banks aligning lending rates with international best practices to support sustainable economic development.
Kenya Bankers Association (KBA) Weighs In
In the afternoon session, Kenya Bankers Association (KBA) CEO, Mr. Raimond Molenje, appeared before the committee to address the banking sector’s response to CBK’s policy changes.
He reported a 2.2% reduction in commercial bank lending rates between November 2024 and March 2025, attributing the delay in rate adjustments to compliance procedures and customer notification requirements under the Consumer Protection Act and CBK Prudential Guidelines.
However, MPs remained skeptical, pointing out inconsistencies in how quickly banks adjust rates.
“Banks must improve transparency and fairness in adjusting interest rates. Borrowers deserve relief when monetary policy supports lower costs,” Kuria insisted.
KBA acknowledged the concern and committed to enhancing communication with CBK post-MPC announcements to ensure fairer implementation of interest rate changes.
NSSF Bond Transactions Under Scrutiny
Beyond interest rates, MPs also questioned Dr. Thugge on transactions involving NSSF bonds, amid concerns over potential losses of public funds.
The lawmakers sought clarification on whether due diligence had been followed in these transactions and whether regulatory oversight had been adequate.
Dr. Thugge assured the committee that CBK was working with relevant agencies to ensure transparency and accountability in government-backed financial instruments. However, he refrained from disclosing specific details, citing ongoing reviews.
Bankers Seek Relief on Government Pending Bills
During the session, bankers raised additional concerns about pending government bills, noting that delays in payments were negatively affecting businesses’ ability to service loans, thereby impacting overall banking sector liquidity.
The KBA urged Parliament to intervene, emphasizing that the resolution of pending bills would enhance financial stability and credit availability.
Next Steps
Following the heated discussions, the committee directed CBK and KBA to provide a detailed follow-up report on measures being taken to enforce lower lending rates and ensure financial sector compliance.
As concerns over high borrowing costs persist, Parliament is expected to keep a close watch on banking sector developments, with further engagements anticipated in the coming months.
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