NCBA cuts loan rates

NCBA Bank has bowed to pressure from the Central Bank of Kenya (CBK), becoming the latest lender to slash its loan rates following the regulator’s aggressive push to lower borrowing costs.

The move comes just days after NCBA Group Managing Director John Gachora argued that market conditions did not support a rate cut.  

In a statement to customers, NCBA announced a reduction in its Kenya Shillings Base Lending Rate from 16.91 per cent to 15.34 per cent per annum, effective February 16, 2025. 

“In view of the recent Kenya Central Bank Rate (CBR) downward revision, we wish to inform you that NCBA Bank’s Kenya Shillings Base Lending Rate will reduce from 16.91 per cent p.a. to 15.34 per cent p.a. This reduction takes effect from February 16, 2025,” said NCBA.

This adjustment follows the CBK’s decision to lower the Central Bank Rate (CBR) by 50 basis points to 10.75 per cent earlier this month. The CBK also cut the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 per cent aiming to boost liquidity and stimulate credit growth.  

NCBA’s decision marks a significant shift in its stance, as the bank had previously resisted calls to lower rates, citing high operational costs and credit risks.

Gachora, who also chairs the Kenya Bankers Association, had maintained that market conditions were not conducive for a rate cut. However, mounting pressure from the CBK, including threats of penalties for non-compliance, appears to have forced the lender’s hand.  

The CBK has intensified its efforts to ensure banks pass on the benefits of its monetary policy to borrowers. Governor Kamau Thugge has warned of strict penalties, including fines of up to Sh20 million or three times the value of undue benefits accrued by non-compliant banks. The regulator has also launched on-site inspections of five major lenders to enforce compliance.  

NCBA’s rate cut follows similar moves by other tier-one lenders, including KCB Group, Co-operative Bank, Equity Bank and Absa Bank Kenya. 

Equity Bank, the largest lender by customer count, announced the most significant reduction yet, slashing its rates by 3.00 percentage points. The new rates, effective February 13 for new loans and March 1 for existing loans, position Equity as the market leader in affordable credit.  

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

KCB Group and Co-operative Bank had earlier reduced their base lending rates to 14.6 per cent and 14.5 per cent, respectively. These cuts are expected to ease borrowing costs for businesses and households, potentially stimulating economic activity and consumer spending.  

President William Ruto has also weighed in on the issue, urging banks to lower lending rates to support economic recovery. Speaking at a recent meeting with bank executives, Ruto highlighted the profitability of Kenya’s banking sector, which he described as the most profitable globally. “I urge you to lend to more people at lower rates,” he said.  

The rate cuts have been welcomed by borrowers, who view them as a critical step toward alleviating financial pressures. Many customers are hopeful that the reduced rates will improve access to credit for personal and business needs.  

However, until now, the impact of the CBK’s monetary policy easing has been limited. Despite several rounds of rate cuts, the average lending rate remained high in December 2024, exacerbating the cash crunch in the economy and hindering business activity.  

The banking sector led by Gachora has consistently argued that lending rates are influenced by factors such as the cost of funds, credit risk assessments, and operational costs. However, with the CBK wielding a “big stick” to enforce compliance, lenders like NCBA have little choice but to fall in line.  

As the CBK continues to push for lower borrowing costs, all eyes are now on other major lenders, including DTB, Stanbic, Absa, and Standard Chartered, to follow suit.