Equity Bank cuts loan interest rates by largest margin yet

Equity Bank, the largest lender in Kenya by customer numbers, has announced a substantial reduction in interest rates, becoming the third major bank to do so this week.

The bank said it will cut its rates by 3.00 per cent on all its Kenya Shilling-denominated credit facilities, marking the largest reduction among its peers.

The bank's new lending rates will feature a revised Equity Bank Reference Rate of 14.39 per cent along with a margin based on individual customer risk profiles.

The new rates are effective February 13, 2025, for new loans and March 1 for existing loans.

The decision mirrors recent significant rate reductions by KCB Group, the largest bank by assets, which recently lowered its base lending rate from 15.6 per cent to 14.6 per cent effective February 10, and tier one lender Co-operative Bank, which reduced its rate from 16.5 per cent to 14.5 per cent.

With this latest adjustment, Equity Bank reckons it is now positioned to offer the most affordable loans in the market, reflecting a growing trend among Kenyan banks to ease borrowing costs amid ongoing economic pressures.

Absa Bank also Wednesday reduced its risk-based pricing benchmark from 17.5 per cent to 16.5 per cent, effective March 12, 2025.

The recent adjustments coincide with the Central Bank of Kenya’s (CBK) Monetary Policy Committee (MPC) decision to lower the Central Bank Rate by 50 basis points to 10.75 per cent.

This reduction aims to stimulate credit growth in the face of challenging economic conditions. The MPC also cut the Cash Reserve Ratio by 100 basis points to 3.25 per cent which is expected to enhance liquidity in the banking sector.

Equity Bank Kenya managing director Moses Nyabanda said the cut reflects the bank's commitment to alleviate the financial burden for Kenyans.

“We understand the financial pressures facing Kenyans today, and we're committed to easing that burden.

"This rate cut is about more than just lower interest rates; it’s about opening doors for Kenyans to invest in their businesses and support their families,” he said in a statement.

The implications of the rate cuts are significant, as lower borrowing costs are expected to stimulate economic activity by making credit more accessible for both businesses and households.

Government officials reckon this could foster job creation and encourage consumer spending, which are essential for economic recovery.

Pressure is mounting on other tier one lenders to follow suit. 

CBK has raised concerns about the slow pace of rate reductions and has urged banks to ensure that the benefits of its monetary policy are effectively passed on to borrowers.

Governor Kamau Thugge has stressed the importance of further rate cuts to support economic growth.

To ensure banks comply, the CBK has launched on-site inspections of five major lenders and warned of penalties for non-compliance.

The amendments to the Banking Act now provide for fines of up to Sh20 million or three times the value of any undue benefits accrued by a bank due to non-compliance.