Bank CEOs summoned as loan costs surge amidst economic challenges

The Central Bank of Kenya (CBK) has summoned bank CEOs to address growing public concerns over the high cost of loans and low deposit interest rates. This intervention comes amidst widespread criticism from borrowers struggling with expensive credit and savers receiving minimal returns on their deposits.
CBK’s move follows its recent decision to raise the benchmark interest rate in September 2024 to 8.25%, aimed at curbing inflation and stabilizing the economy. However, this adjustment has triggered a rise in loan costs across multiple banks, further straining households and businesses. Leading banks such as NCBA, Standard Chartered, and Stanbic have already adjusted their base lending rates upwards, citing risk-based pricing and higher borrowing costs.
The disparity between loan rates and deposit returns has sparked debates over fairness in Kenya’s financial sector. Small businesses, which heavily depend on affordable credit, have been particularly affected, limiting their ability to expand and create jobs. At the same time, the volume of non-performing loans in the country has surged, hitting a record high of KSh 634 billion by October 2023. Banks have attributed this to the economic slowdown, rising credit risks, and borrowers’ inability to meet their obligations.
CBK Governor Dr.Kamau Thugge emphasized the need for transparency in banks’ pricing models to ensure fairness and maintain stability in the financial system.
“Banks must ensure that interest rates are justifiable and not punitive. The stability of the financial system depends on maintaining a balance that supports both borrowers and savers,” Thugge stated.
The upcoming dialogue is expected to push for reforms that balance profitability with consumer protection. This aligns with broader efforts to anchor inflationary expectations and safeguard economic recovery.
CBK has emphasized the need for banks to justify their pricing models and avoid punitive interest rates. It has warned against exploiting customers and is pushing for reforms that will ensure fair treatment for both borrowers and savers. These measures are expected to improve access to affordable credit while maintaining stability in the banking system.
As Kenya grapples with economic recovery, the outcome of these discussions will play a pivotal role in shaping the financial sector’s practices. For many, achieving a balance between profitability and consumer protection is critical to rebuilding trust and ensuring inclusive economic growth.