Lower Borrowing Costs Emerge as Kenyan Banks Cut Loan Rates

Kenyans are beginning to feel the impact of lower borrowing costs after the Central Bank of Kenya (CBK) cut its policy rate, triggering a decline in commercial bank lending rates.

The CBK policy rate has fallen from 13 per cent to 8.75 per cent, while average bank loan interest rates have eased from 15.3 per cent to 14.4 per cent.

The reduction is making credit slightly more affordable for households and businesses, although the decline in lending rates has been relatively modest compared with the reduction in the central bank’s policy rate.

The banking sector has also recorded an improvement in loan repayment, with bad loans falling by nearly nine per cent from KSh608 billion to KSh554.3 billion.

The decline suggests that more borrowers are managing to service their loans as financial conditions improve.

However, savers have not enjoyed a similar trend.

Returns paid by banks on customer deposits declined more sharply, falling from 8.4 per cent to 6.8 per cent.

This means borrowers are benefiting from only a modest reduction in the cost of credit, while customers who keep their money in bank deposits are earning significantly less from their savings.

The developments come as Kenyan banks continue to post strong earnings despite the changing interest-rate environment.

During the first half of 2026, nine listed banks reported a combined pre-tax profit of KSh144.9 billion, representing a 17 per cent increase from KSh124 billion recorded during the same period in 2025.

Equity Group recorded a 31.5 per cent increase in profit to KSh43.8 billion, maintaining its position as the largest profit earner among the banks covered.

KCB Group also posted strong growth, with its profit rising by 14 per cent to KSh36.9 billion.

Family Bank recorded the fastest profit growth, with its earnings increasing by 61.8 per cent during the period.

The bank’s strong profit performance, however, came alongside an increase in bad loans, highlighting continued pressure on some borrowers despite the broader improvement in asset quality across the banking sector.

The contrasting trends underline the changing dynamics in Kenya’s banking industry, where falling interest rates are gradually easing borrowing costs while returns on savings decline.

For households and businesses seeking credit, the lower lending rates could provide some relief and support investment and consumption. For savers, however, the decline in deposit returns means they are earning less from money held in banks.

The continued reduction in interest rates, alongside improving loan repayment, could provide further support to borrowers if banks continue passing on lower funding costs to customers.

Read: CoB Raises Alarm Over Ksh20B Paid on Undrawn Loans

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