8.75% Gamble: Why your bank is ghosting you

The Central Bank of Kenya (CBK) just pulled the trigger on its tenth consecutive interest rate cut, bringing the base lending rate down to a decade-low of 8.75%. In a world of cold economic data, this sounds like a win. If you’re a business owner or a homeowner, the math should be simple: the CBK cuts, the banks follow, and your monthly repayment drops.

But if you’ve checked your bank app lately, you probably noticed something unsettling. The rates aren't moving as fast as the headlines suggest. While the "anchor rate" is sinking, commercial lending rates are stuck in a slow-motion descent, currently hovering around 14.8%.

I genuinely don't know how to feel about the optimism coming out of the CBK right now. Governor Kamau Thugge talks about "stimulating lending" and "firmly anchored expectations," but on the ground, the relationship between Kenyans and their banks looks more like a ghosting story.

The Great Default Disconnect

The headline-grabber from the latest Monetary Policy Committee (MPC) meeting isn't just the rate cut. It’s the fact that loan defaults have dropped by 1.2% in the last two months—the fastest improvement in ten years.

Usually, when defaults go down, banks get brave. They start lending again. But look at the data: gross non-performing loans (NPLs) are still at a massive 15.5%. That is one in every seven shillings essentially "lost" or stuck in a legal limbo. Banks aren't being mean; they’re being terrified.

This is why, despite the CBK’s aggressive slashing, your bank is probably making it harder than ever to get a loan. They are demanding higher collateral, lengthening the application process, and "restricting lending to individuals" as the CBK itself admits.

Where the Money is Actually Going

If you aren't getting the money, who is? The real estate sector seems to be the only one consistently invited to the party. While personal households are being told to "try a digital lender," credit to the private sector actually grew by 6.4% in January.

The money is flowing into urban centers and "satellite towns." Think about the cranes you see in places like Ruiru, Kitengela, or the endless apartment blocks in Kilimani. Demand for income-generating property remains steady because, as the industry players say, we still have a massive housing deficit. But for the average Kenyan trying to start a small business or pay school fees, the bank's front door feels heavier than ever.

The Rise of the "Shadow" Lender

Because the traditional banks are so hesitant, we are seeing a massive shift in how Kenyans survive. The CBK report notes that households have "diversified their borrowing profiles." That’s a polite way of saying people are turning to Saccos, family, and digital lenders.

This is the hidden risk in the current stability. While the shilling is stable and inflation is "easing" at 4.4%, the cost of doing business remains high. When a bank says no, and a digital app says yes at 10% interest per month, the "8.75% anchor rate" becomes a meaningless number. It’s a ghost rate for a ghosted population.

Narrowing the Corridor

To fix this, the CBK is trying something technical: they’ve narrowed the "interest rate corridor" from ±75 basis points to ±50. In plain English, they are trying to force the interbank rate (what banks charge each other) to sit closer to the official rate.

Thugge is hoping this "monetary policy transmission" will finally force the commercial banks to pass the benefit to you. But until that 15.5% default rate sinks further, don’t expect a warm welcome at the loan desk.

The future might look "bright" in the CEO surveys, but for the person sitting in a shop in Biashara Street, the disconnect is real. The rates are down, the defaults are dropping, but the money? The money is still waiting for a reason to trust us again.