Co-operative Bank has taken the lead in slashing its lending rates. The bank has reduced its base lending rate by a significant two percentage points, from 16.5 per cent to 14.5 per cent. This move, which takes effect immediately, is expected to ease borrowing costs and stimulate credit growth across key sectors of the economy.
Co-op Bank’s decision follows last week’s adjustment by CBK, which lowered the Central Bank Rate (CBR) by 50 basis points from 11.25 per cent to 10.75 per cent. This reduction was aimed at enhancing access to credit for businesses and households. Additionally, CBK reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3.25 per cent, injecting an estimated Ksh 57 billion in additional liquidity into the banking sector to further support lending.
According to Co-op Bank Group Managing Director and CEO Gideon Muriuki, the decision to cut lending rates aligns with the institution’s commitment to supporting economic growth, particularly for micro, small, and medium enterprises (MSMEs). “The reduction in lending rates is intended to stimulate credit growth to key sectors of the economy, notably the MSMEs that are a critical engine to drive and sustain economic growth,” Muriuki stated.
The effective lending rate for Co-op Bank customers will now be the base lending rate of 14.5 per cent per annum, with an additional margin of between zero and four per cent depending on individual credit profiles. This adjustment makes Co-op one of the most competitive lenders in the market, a position it held last year alongside its subsidiary, Kingdom Bank.
Co-op Bank’s move is likely to prompt a domino effect among other financial institutions, with several expected to follow suit in cutting their lending rates. Lower interest rates provide much-needed relief to borrowers amid the prevailing high cost of living. The CBK has also intensified efforts to ensure banks implement the Risk-Based Credit Pricing Model (RBCPM) and pass on the benefits of lower borrowing costs to customers. Failure to comply could result in penalties as per amendments to the Banking Act.
As Kenya navigates an economic slowdown evidenced by a drop in GDP growth from six per cent in Q3 2023 to four per cent in Q3 2024 such monetary policy measures are expected to provide much-needed stimulus. With projected GDP growth of 5.4 per cent this year, reduced lending rates could serve as a catalyst for economic resurgence.
