The High Court has issued a temporary order permitting banks and financial institutions to modify loan interest rates without first obtaining approval from the National Treasury. This ruling suspends Section 44 of the Banking Act, which mandates lenders to secure the Treasury Cabinet Secretary's consent before increasing interest rates.
The decision, made on August 13, 2026, follows a legal challenge by the Kenya Bankers Association (KBA) against the approval requirement. The court's conservatory order halts the enforcement of this provision while the case proceeds.
Background and Implications
- Section 44 of the Banking Act currently restricts banks from raising loan rates without prior Treasury approval.
- KBA argues that this requirement infringes on the constitutional independence of the Central Bank of Kenya (CBK).
- The December 2025 High Court ruling upheld Section 44, but KBA has appealed to the Court of Appeal.
- Pending the appeal, the new order allows banks to adjust rates freely.
CBK Governor Kamau Thugge has emphasized that monetary policy decisions should be implemented independently by banks without needing Treasury approval. Speaking at the East Africa Banking School Conference in July 2026, he stated that changes in monetary policy should directly influence lending rates.
It is important to note that this ruling does not permanently remove Section 44 or compel banks to raise interest rates. Instead, it grants temporary flexibility to adjust rates while the legal process continues.
The ruling comes shortly after CBK maintained the benchmark lending rate at 8.75%, aiming to manage inflation amid global economic uncertainties and rising oil prices.
