Kenya’s Central Bank and the Supreme Court have clashed over how commercial lenders should set loan rates. The Central Bank of Kenya (CBK) says lenders must adjust rates immediately when the Central Bank Rate changes, directly contradicting the Supreme Court’s recent ruling that banks need formal approval from the Treasury Cabinet Secretary before any rate hike.
Diverging legal interpretations
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 places the regulator in direct conflict with the Supreme Court, which ruled that banks breached the law after changing their lending rates without approval, exposing them to refunds running into billions of shillings.
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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.” 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, 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.”
Banks have been receiving approvals from the CBK before increasing lending rates on the back of a May 2006 legal notice. Through this notice, then Minister for Finance Amos Kimunya officially delegated the consent powers to the central bank governor. However, the courts sided with customers that a Cabinet Secretary “can only donate his authority but not responsibility,” noting that Section 44 does not derail CBK’s monetary policy powers.
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Industry pushback and court rulings
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. Raimond Molenje, the chief executive of Kenya Bankers Association, downplayed any suggestion that it will be impractical for banks to comply with court requirements and CBK expectations without triggering lawsuits. He argued that the requirement to seek the minister’s nod before varying rates applies only to “any increase outside CBR movement.”
The CBK had largely stayed on the sidelines as commercial banks battled borrowers in court over the interpretation of Section 44. In June 2024, the Supreme Court held that banks cannot vary customers’ interest loan rates without the approval of the 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.
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“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,” said the court.
The legal setting remains complicated by a 2006 legal notice that had allowed the Treasury to delegate its approval powers to the CBK governor. This legal framework has been invalidated by recent judgments, further complicating the regulatory environment. 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.
