The High Court has stayed the rule requiring banks to obtain prior approval from the Cabinet Secretary for the National Treasury before raising loan interest rates.
The order was issued on August 13, in a case filed by the Kenya Bankers Association (KBA) against the Attorney General and the Cabinet Secretary for the National Treasury, with the Central Bank of Kenya (CBK) as an interested party.
The court issued the conservatory order in the case challenging the application of Section 44 of the Banking Act. The association is represented by Dentons Hamilton Harrison & Mathews.
The High Court has stayed the application of Section 44 to the extent that it requires institutions to obtain prior approval from the Cabinet Secretary before increasing interest rates on loans.
The order is temporary and will remain in force pending further orders in the appeal proceedings.
KBA Challenges Section 44
Section 44 of the Banking Act provides that an institution cannot increase its rate of banking or other charges without the prior approval of the Cabinet Secretary.
The provision has become a major point of contention in Kenya’s banking sector, particularly following court decisions that interpreted “rate of banking” to include interest charged on loans.
In June 2024, the Supreme Court held that banks and financial institutions must obtain approval from the Cabinet Secretary before increasing interest rates on loans and other credit facilities.
The KBA challenged the law, saying that requiring Treasury approval before banks increase charges undermines the Central Bank of Kenya’s independence and its role in setting monetary policy.
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However, the High Court dismissed the case in December 2025, ruling that the law does not interfere with the CBK’s mandate.
The court said that while the CBK influences interest rates through monetary policy, commercial banks’ loan-pricing decisions are business matters that Parliament can regulate.
KBA subsequently moved to the Court of Appeal to challenge that decision.
The disagreement has largely centred on what should happen when the CBK changes its benchmark interest rate.
The CBK uses the Central Bank Rate (CBR) as a key monetary-policy tool. When the rate changes, the expectation is that commercial banks will adjust their lending rates accordingly.
However, courts have interpreted Section 44 as requiring banks to seek Treasury approval before raising bank charges, including loan interest rates.
This has created tension between the need for banks to respond to monetary-policy changes and the statutory requirement for prior approval.
CBK Governor Calls for Immediate Transmission of Rate Changes
The High Court latest order comes less than a month after CBK Governor Kamau Thugge addressed the dispute over the implementation of monetary policy and lending rates.
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Speaking at the East Africa Banking School Conference on July 14,Thugge said the Central Bank’s position was that changes to its policy rate should be reflected immediately in commercial banks’ lending rates without requiring approval from the National Treasury.
“When we change the interest rate that should translate immediately to lending rates, we don’t have to go through the minister,” Thugge said.
He said the expectation applied both when the CBK raises and lowers its policy rate. Banks, he noted, should respond promptly whenever the monetary policy stance changes.
What the High Court Order Means for Banks
The new conservatory order temporarily removes the requirement for banks to obtain prior Treasury approval before increasing loan interest rates, within the scope specified by the court.
It does not, however, constitute a final ruling that Section 44 is unconstitutional or permanently remove the Treasury’s approval requirement.
The legal dispute will now continue through the appellate process, where the Court of Appeal will consider the challenge brought by the Kenya Bankers Association.
The outcome could have significant implications for how commercial banks adjust lending rates whenever the CBK changes its monetary-policy stance, as well as the extent of Treasury’s role in approving changes to loan interest rates.
For borrowers, the case could ultimately determine how quickly changes in the CBK’s benchmark rate are reflected in the cost of loans and whether banks will need government approval before passing higher rates on to customers.
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