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Banks that cut borrowing costs the most
Central Bank of Kenya (CBK) Governor Kamau Thugge appears before the Senate Committee on Devolution and Intergovernmental Relations, chaired by Senator Mohamed Abass Sheikh at Bunge Tower, Nairobi on July 24, 2025.
Absa Bank Kenya, Citibank N.A. Kenya and Middle East Bank made the largest cuts in borrowing costs in 2025, as most banks extended relief to borrowers.
Absa ended December 2025 with its average lending rate at 13.75 percent, representing a 5.2 percentage points cut from 18.95 percent in December 2024 as per an analysis of data published by the Central Bank of Kenya (CBK).
Citibank and the Middle East, meanwhile, cut their interest rates by 5.16 percentage points and 4.93 percentage points, respectively, to 10.17 percent and 17.07 percent.
Thirty-four out of the 38 banks reduced their loan costs in the review period. Top lenders Equity Bank Kenya and KCB Bank Kenya reduced their average lending rates by 1.11 and 1.62 percentage points each to 14.96 percent and 15.24 percent, respectively.
Citibank closed the year with the lowest overall interest rate at 10.17 percent, ahead of Stanbic Bank Kenya (11.8 percent), Standard Chartered Bank Kenya (12.69 percent), and Ecobank Kenya (12.77 percent).
Raised rates
Four small commercial banks, however, bucked the trend by raising their overall lending rates despite pressure to bring down the cost of borrowing, including successive cuts to the CBK benchmark rate.
The four banks include UBA Kenya and Kingdom Bank, whose average weighted interest rates rose by 1.18 and 2.01 percentage points, respectively.
Consolidated Bank of Kenya and DIB Bank Kenya increased their lending costs by 0.54 and 0.03 percentage points, respectively.
The lending rate at Kingdom Bank rose from 14.11 percent in December 2024 to 16.12 percent in December 2025, while borrowing costs at UBA Kenya, Consolidated Bank, and DIB rose marginally to 15.87 percent, 14 percent, and 16.54 percent, respectively.
The four banks defied the overall direction of interest rates in a year that saw the CBK lower its benchmark rate from 11.25 percent in December 2024 to nine percent currently.
CBR and Kesonia
The regulator also unveiled a revised loan pricing regime beginning on December 1, 2025, where the cost of all new and existing loans is to be based on either the Central Bank Rate (CBR) or the overnight lending rate between banks (interbank rate), which has been renamed as the Kenya Shilling Overnight Interbank Average (Kesonia).
The banks apply a premium, depending on a customer’s creditworthiness, to the base rate to arrive at the effective lending rate.
CBK Governor Kamau Thugge criticised banks in 2025 for failure to cut interest rates in line with the reduced benchmark, but expected the new regime to result in lower borrowing costs from commercial banks.
“There should be no excuse by banks for whatever reason. There have been quite a number of excuses. This time, there won’t be an excuse. Once we lower the benchmark rate, banks should also lower their rates,” Dr Thugge said in October last year.
Banks began announcing interest rate cuts in late November ahead of the start of the new pricing regime, with UBA Kenya disclosing that it had cut its base lending rate to 11.78 percent from 14.79 percent on both its new and existing loans.
KCB, Absa, and Diamond Trust Bank (DTB) also issued notices to their customers and the public on their implementation of the new pricing model.
The CBK disclosed in December that most banks adopted the CBR as the new benchmark for loan pricing against earlier protests about the use of the apex bank’s policy rate.
The regulator allowed banks to use the CBR as an alternative to Kesonia in addition to a combination of both benchmarks as deemed necessary.
“About 48 percent of banks have used the CBR, while another 34 percent are using both the CBR and Kesonia, while the remainder are banks that have chosen to use Kesonia alone,” Dr Thugge said on December 10.
“All commercial banks have submitted their risk-based pricing formulas, which they will be implementing, and we expect this to be a transparent process.”
Private sector credit
The lower industry lending rates have revitalised the growth of private sector credit by increasing the demand for loans.
Commercial banks’ lending to the private sector accelerated in November to 6.3 percent, marking the fastest pace in 19 months as improving credit conditions and lower borrowing costs spurred demand.
The last time the pace of growth exceeded this level was in April 2024 at 6.6 percent.
The latest pace of credit growth marks a contrast to the contraction of 2.9 percent in January.
The CBK attributed the growth in private sector credit to the falling interest rates.
“Growth in credit to key sectors of the economy, particularly manufacturing, building and construction, trade and consumer durables, remained strong in November. This mainly reflects improved demand for credit in line with the declining lending interest rates,” the CBK said in a statement last month.
Lower commercial bank interest rates have also reduced loan defaults, with the ratio of gross non-performing loans (NPLs) falling to 16.5 percent in November 2025 from 16.7 percent in October and 17.6 percent in August.
“Decreases in (defaults) were noted in the mining and quarrying, energy and water, personal/household, and transport and communication sectors. Banks have continued to make adequate provisions for the NPLs,” the CBK added.
The revised risk-based loan pricing model is set to be fully operational by March 2026, with banks applying the regime on new loans from December 1, 2025, and by February 28, 2026, for existing facilities.
