On February 10, 2025, Co-operative Bank of Kenya made a significant move in the financial sector by reducing its base lending rate by two percentage points to 14.5%. This marked the first major reduction in loan pricing since the Central Bank Rate (CBR) began to decline last August.
The Nairobi Securities Exchange-listed bank announced the base rate cut from 16.5% early Monday morning, taking immediate effect. Gideon Muriuki, Managing Director of Co-op Bank, stated that loans would now be priced at the new 14.5% base rate, plus a margin of up to four percent per year, depending on each customer’s credit profile. As of September last year, Co-op Bank’s loan book stood at KSh381.3 billion.
“The reduction in lending rates aims to stimulate credit growth in key sectors of the economy, particularly micro, small, and medium-sized enterprises, which are essential for driving and sustaining economic growth,” Muriuki said.
Co-op Bank becomes the first major lender to announce such a cut in loan costs, following the Central Bank of Kenya’s (CBK) reduction of the CBR to 10.75% from 11.25% last Wednesday. The CBK has warned lenders of penalties if they fail to reduce credit prices accordingly.
The bank’s decision is expected to lower its average interest rates, which had peaked at 16.9% in December last year, compared to 15.14% in August when the CBK began lowering the CBR.
The CBK has been actively reducing the CBR to support economic stability. This trend has occurred in an environment where inflation is below the targeted band of 2.5% to 7.5%, and the Kenyan shilling remains relatively stable against the dollar, appreciating by nearly a fifth last year.
However, banks have been slow to cut lending rates, citing locked-in expensive deposits. CBK data showed that average lending rates had reached an eight-year high of 17.22% in November, slightly decreasing to 16.89% in December following regulatory intervention.
Last week’s CBR cut marked the fourth consecutive reduction in seven months, lowering the benchmark rate by a cumulative 2.25 percentage points from a 22-year high of 13% that persisted between February and August last year. Additionally, the CBK reduced the cash reserve ratio by one percentage point to 3.25% to encourage private sector credit growth, which had contracted by 1.4% in December.
CBK Governor Kamau Thugge announced that his team is conducting on-site inspections to ensure banks reduce their interest rates in line with risk-based credit pricing models. “Any bank not passing on the benefits of reduced funding costs to lower lending rates will be penalized according to the law,” stated Dr. Thugge in last week’s monetary policy committee announcement.
By the end of December, only four lenders—Citibank NA Kenya, Standard Chartered Bank Kenya, Victoria Commercial Bank, and Stanbic Bank Kenya—had reduced their rates by at least 1.75 percentage points, reflecting the cumulative CBR cuts made by the CBK between August 6 and December 5.
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