NAIROBI, Kenya – In a move that’s bound to shake up the banking sector, Co-operative Bank Group has cut its base lending rate by 2 percentage points, making it the first major lender to pass on the benefits of the recent Central Bank of Kenya (CBK) rate cut to borrowers.
The rate reduction, from 16.5pc to 14.5pc, follows last week’s CBK decision to lower the Central Bank Rate (CBR) to 10.75pc from 11.25pc, a shift aimed at stimulating credit flow to businesses and households.
Lending rates cut Borrowers get relief as lenders lower rates Coop bank leads with 14.5% rate cut Move expected to trigger wide market response #CitizenMondayReport @TrevorOmbija
What This Means for Borrowers
Effective immediately, Co-op Bank’s lending rate will be 14.5pc per year, plus an additional margin of 0pc to 4pc, depending on the borrower’s credit profile.
This translates to lower interest rates for qualifying customers, particularly micro, small, and medium-sized enterprises (MSMEs)—the backbone of Kenya’s economy.
“This reduction is designed to boost credit growth in key economic sectors, particularly SMEs, which drive economic development,” said Gideon Muriuki, Co-op Bank’s Group Managing Director and CEO.
The move builds on Co-op Bank’s trend of offering cheaper credit, a strategy it continued last year alongside its subsidiary, Kingdom Bank.
With CBK urging banks to pass rate cuts to consumers, borrowers now have real hope that more lenders will adjust their rates downward.
Why This Move Could Trigger a Banking Sector Shift
Historically, Kenyan banks have been slow to adjust lending rates downward, even when CBK lowers the benchmark rate. But this time, pressure is mounting.
CBK has already taken steps to ensure compliance, reducing the Cash Reserve Ratio (CRR) from 4.25pc to 3.25pc, freeing up an estimated Sh57 billion in liquidity for banks to lend.
We have reduced our Base Lending Rate from 16.5% to 14.5% per year – effective immediately! The final interest rate will be 14.5% + a small margin (0% to 4%), depending on your credit profile.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further,” CBK Governor Kamau Thugge emphasized.
CBK has also launched inspections to ensure banks follow through, and new amendments to the Banking Act now penalize lenders that fail to pass on rate cuts to borrowers.
With Co-op Bank taking the first step, the question remains: Will other banks follow, or will they hold out until regulators step in?
The Bigger Economic Picture
The rate cut comes at a critical time, as Kenya’s economy slowed to 4pc growth in Q3 2024, down from 6pc in Q3 2023.
The overall economic growth forecast for 2024 stands at 4.6pc, a decline from 5.6pc in 2023, largely due to sluggish expansion across various sectors.
For now, all eyes are on Kenya’s top lenders to see whether Co-op Bank’s bold move will set off a sector-wide lending rate adjustment.
