Kenya’s banking regulator is taking a two-pronged approach to monetary management, loosening interest rates to spur lending while simultaneously tightening supervision of the country’s financial institutions. In 2024, the Central Bank of Kenya (CBK) fined 11 commercial banks for breaching key rules on lending limits, capital adequacy, and governance.
The move signals a clear policy stance: lower policy rates should translate into more affordable credit for businesses and households, but not at the expense of prudent risk management. The penalties came in a year when the CBK’s Monetary Policy Committee reduced the benchmark lending rate from 13% to 9.75%, aiming to stimulate private-sector borrowing and economic growth.
However, regulators say many banks have been slow to pass on the benefits of cheaper central bank funding to their customers. Three institutions were found to have liquidity shortfalls, falling below the mandatory minimum liquidity ratio of 20%, which ensures banks can meet short-term obligations.
In total, the CBK collected KSh191 million in fines from commercial banks and foreign exchange bureaus in 2024. While this represents a slight decline in the number of institutions penalized compared to 2023, the consistent enforcement reflects the regulator’s ongoing commitment to stricter oversight. The CBK did not disclose the names of the offending lenders or the size of individual fines, citing concerns over market sensitivity and industry stability.
In the short term, the tougher enforcement could prompt banks to tighten their underwriting processes, strengthen governance structures, and review capital plans. Over the longer horizon, adherence to lending limits, improved capital buffers, and stricter governance should reduce systemic risks.
If successful, the CBK’s dual-track strategy could give the regulator greater confidence that future monetary easing will deliver its intended impact getting affordable credit into the hands of businesses and households without undermining the stability of the financial system.
