The Central Bank of Kenya (CBK) has differed with the Supreme Court judgment requiring commercials banks to seek formal approval from the Treasury Cabinet Secretary before changing interest rates.
The CBK says it expects lenders to vary loan rates immediately it revises the Central Bank Rate (CBR), placing them at odds with the court’s decision.
CBK Governor Kamau Thugge told bankers that monetary policy decisions are independent and should be implemented directly by banks without going through the Treasury.
This interpretation differs from that of the Supreme Court, which ruled that banks breached the law after changing their lending rates without approval from the Treasury, exposing the lenders to refunds running into billions of shillings.
The judges hinged their ruling on Section 44 of the Banking Act, which states that “no institution shall increase its rate of banking or other charges except with the prior approval of the minister.”
Banks have been receiving approvals from the CBK before increasing lending rates on the back of a May 2006 legal notice, through which then Minister for Finance Amos Kimunya officially delegated the consent powers to the central bank governor.
The courts sided with customers that a Cabinet Secretary “can only donate his authority but not responsibility.”
The judges noted that Section 44 does not derail CBK’s monetary policy powers.
Commercial lawyers warn that Dr Thugge’s latest comments will expose banks to conflicting signals from the regulator and the courts, leaving them exposed to potential lawsuits.
Moureen Nyatichi, legal manager at Taxwise Africa Consulting, which specialises in commercial disputes, said any increase in lending rates without the Treasury’s approval could still be deemed illegal for as long as Section 44 exists.
“Banks are caught in such a difficult situation. It is what the law says versus what they are being asked to do,” said Ms Nyatichi.
“Whatever the law says is what the judges will use to determine any case. If the law says go to the CS, no judge will rule against what the law says, and this presents exposure for banks.”
But banks appeared to back the regulator’s position, signalling that they will start adjusting rates immediately if CBK makes changes to CBR.
Raimond Molenje, the chief executive of Kenya Bankers Association (KBA), the industry lobby, downplayed any suggestion that it will be impractical for banks to comply with court requirements and CBK expectations without triggering lawsuits or penalties. He argued that the requirement to seek the minister’s nod before varying rates applies only to “any increase outside CBR movement.”
“The CBK guidance is in respect of movement in CBR. When CBR moves up or down and with the revised risk-based credit pricing, where we have a uniform base for the industry, banks will immediately adjust the lending rates for customers up or down,” said Mr Molenje in response to Business Daily queries.
KBA’s latest position is a departure from the position they held in March this year when they wrote to the CBK, protesting that Section 44 makes it impractical for them to adjust rates immediately after CBR shifts.
The CBK had largely stayed on the sidelines as commercial banks battled borrowers in court over the interpretation of Section 44 of the Banking Act, which requires lenders to seek approval from the Treasury Cabinet Secretary before increasing banking charges.
In June 2024, the Supreme Court held that banks cannot vary customers’ interest loan rates without the approval of Treasury Cabinet Secretary.
The judgment followed a suit pitting a borrower against Stanbic Bank Kenya, which was ordered to refund a customer over Sh10 million.
The Supreme Court decision was followed by several other judgments, including in December when the High Court threw out KBA’s petition to strike out Section 44 because it was stopping banks from immediately varying loan rates when the CBK changes the CBR.
In the December 11, 2025 judgment, the court held that Section 44 neither usurps nor interferes with the CBK’s constitutional mandate.
“The petitioner (KBA) has not shown how Section 44 impairs or constrains the CBK’s authority to set the CBR, implement liquidity controls, issue directives, or undertake other core monetary-policy functions,” said the court.
“CBK may influence market interest rates, but the actual pricing of loans by private banks is a commercial decision. Parliament is constitutionally permitted to regulate such commercial conduct to protect consumers and ensure fairness in the credit market.”
In February last year, the CBK wrote to bank CEOs directing them to promptly revise lending rates following changes in the CBR.
Banks fired back, arguing that immediate adjustments would violate existing laws requiring prior notice to borrowers. Several court decisions have found lenders such as Stanbic Bank and Spire Bank in breach of the law for adjusting rates without the approval of the Treasury Cabinet Secretary.
The judgments also invalidated a 2006 legal notice that had allowed the Treasury to delegate its approval powers to the CBK governor, further complicating the regulatory landscape.
Last year, the CBK accused banks of dragging their feet in passing on the benefits of lower benchmark rates to customers, arguing that lenders respond swiftly when rates rise but delay reductions to protect profit margins.
Banks have routinely been seeking clearance from the CBK when altering loan terms, and the Treasury rarely intervened.
The Treasury’s stance has persisted for nearly two decades, with the position of courts thrusting it back into a central regulatory role it had informally relinquished. Mr Kimunya’s legal notice had been used over the years by the CBK to receive and approve banks’ applications to vary interest rates.
