Christmas comes early for borrowers as banks cut loan rates

CBK’s Monetary Policy Committee says the base lending rate reduction was underpinned by a favourable inflation outlook. [File, Standard]

Borrowers have received an early festive season boost after three of the country’s largest lenders cut their base lending rates, following a cue from the Central Bank of Kenya (CBK). The move is set to ease credit costs, in turn boosting customers’ consumer power ahead of peak Christmas and New Year spending.

Equity Group, the largest bank by customer base, KCB Group, the largest by asset size and Absa Bank Kenya, notified customers of the reduction, which aligns with a 25-basis-point cut in the Central Bank Rate (CBR) to 9.0 per cent announced by the CBK’s Monetary Policy Committee on December 9.

The banks’ actions, detailed in public notices, mean new borrowers will immediately benefit from cheaper credit, providing a potential lift to consumer spending during a period marked by family gatherings, travel, and gift-giving.

“Following the latest adjustment of the Central Bank Rate (CBR)... new local currency-denominated variable-rate loans taken from December 11, 2025, will be priced on a base rate of 9.0 per cent,” KCB Bank stated in its notice.

The final interest rate for a customer will be the base rate plus a risk-adjusted premium. Equity Bank and Absa Bank Kenya issued a similar communication, confirming that all new local currency variable-rate loans from December 10 would be priced under the revised CBR of 9 per cent, plus a customer-specific premium.

Absa Bank said: "We are pleased to inform you that the pricing of your facility with Absa has been revised downwards. Effective January 1, 2026, Absa Risk-Based Pricing (ARBP) Base Rate will be reduced from 13.43 per cent per annum (p.a) to 12.93 per cent p.a. Consequently, your loan interest rate and monthly instalment will be reduced, while your repayment period remains unchanged.”

“Your Absa RBP-linked facility will automatically benefit from the reduced base rate, creating room for improved cash flow or reinvestment.”

Existing borrowers with variable-rate loans will, however, see a slower transition. The banks indicated that loans issued before December 1 would migrate to the new CBR-based pricing framework by the end of a CBK-mandated transition period on February 28, 2026.

The move by the three banks to cut loan rates is a direct response to the CBK easing cycle, designed to stimulate private sector lending and support economic growth. CBK Governor Kamau Thugge had said on Wednesday the cut would “augment the previous policy actions aimed at stimulating lending by banks.”

The timing is crucial. The Christmas season is a historically high period for consumer expenditure in Kenya, with households increasing spending on retail goods, hospitality, and services.

Cheaper loans could fuel this seasonal demand, offering relief to businesses that have reported muted consumer purchasing power. The New Year season is also marked by a spike in spending as Kenyan households pay for back-to-school shopping sprees and school fees payments in January.  Data shows average commercial lending rates have already fallen to 14.9 per cent from 17.2 per cent a year ago, with private sector credit growth recovering to 6.3 per cent year-on-year in November.

The MPC said the rate reduction was underpinned by a favourable inflation outlook, with November inflation at 4.5 per cent, solidly within the government’s target band.

The MPC projected economic growth would accelerate to 5.2 per cent for the full year.

The move to lower loan rates by two of Kenya’s largest banks now shifts pressure onto other lenders to follow suit, raising hope that the CBK’s monetary policy signal will translate broadly into more affordable credit for the market.