How Kenya’s Banks Are Preparing for Interest Rate Changes and What It Means for You

The world is said to be experiencing polycrises as the frequency of Volatile, Uncertain, Complex and Ambiguous (VUCA) global economic shocks rises. The current US-Israel-Iran war began on 28^th February 2026 with a preliminary agreement to end the conflict in Mid-June 2026. The result is global oil supply disruptions at the crucial Strait of Hormuz, which connects the Persian Gulf and the Gulf of Oman. The Strait of Hormuz sea route serves 20% of global petroleum supply and 33% of LNG, thus affecting global energy prices and stability. The Brent Oil Futures price rose from $73/barrel on 27^th February 2026 to cross the $100/barrel psychological benchmark on March 9^th 2026 when it astronomically rose to $119.5/barrel. Since the start of the US-Israel-Iran war, the Brent oil price has risen by 73.16% to the high of $126.41/barrel on April 30^th 2026, but de-escalation through truce peace negotiations has seen it fall to $79.57/barrel on 17^th June 2026.

Table 1 above shows the major global economic shocks since 2020 and their effects on spikes in Brent crude oil price;  rises in US inflation, Federal Funds Rate (FFR) and 3 months treasury bill and on increases in Kenya’s inflation rate, Central Bank of Kenya Rate (CBR), 91 days treasury bill rate, the lending rate by commercial banks and depreciation of the USD/KES exchange rate.

Six (6) key global central banks (US, China, UK, Canada, Switzerland, Sweden), as well as Kenya’s CBK, have not yet hiked their monetary policy interest rates in response to rising imported fuel inflation driven by the USA-Israel-Iran war. Four (4) global central banks have hiked their rates by 25 basis points. The European Central Bank (ECB) raised all three of its policy rates, with its Main Refinancing Operations Rate jumping from 2.15% to 2.4%. The Bank of Japan raised its rate from 0.75% to 1%. Norway Bank rate moved from 4% to 4.25%. Australia’s central bank rate rose from 4.1% to 4.35%.

How Kenyan Banks Prepare for Global Economic Shocks 

Banks generally prepare for global economic shocks through three (3) key buffers. They maintain an agile balance sheet by increasing their liquidity ratio buffers and capital-to-total risk-weighted asset ratio buffers above minimum regulatory requirements through retained earnings, Tier 2 subordinated loans, or share sales. Banks build loan asset-quality buffers through conservative loan-loss provisioning.

Rising Export Prices and Revenues

This invites banks to prepare for intense peer competition for foreign currency deposits held by exporters, including expensive structured deposits from top commodity exporters. This means exporters are winners, but foreign currency loans will be expensive for everyone.

Also Read: CBK Reveals Number of Kenyan Banks Yet to Meet Ksh3 Billion Capital Requirement

Rising Import Prices and Bill

Banks prepare for this by mobilizing foreign currency deposits from exporters, tourism, Foreign Direct Investment (FDI), the diaspora, subsidiaries, or by borrowing from Development Finance Institutions (DFIs) and Sovereign Wealth Funds (SWFs). What this means for you is that importers will get more expensive loans from banks, and then they will pass the cost to you via higher prices for imported goods.

Interest Rates

Banks’ lending rates as well as Treasury bill and bond rates rise when the Central Bank hikes its policy rate to curb inflation. Banks also prepare by hedging their interest rate risk or by designating treasury bonds they can repo by selling them to other banks or the Central Bank to obtain short-term liquidity, agreeing to buy them back at a slightly higher pre-agreed price. 

USD/KES Depreciation

Banks prepare by aggressively mobilizing foreign-currency deposits from exporters, NGOs, tourism, the diaspora, structured deposits from commodity exporters, FDI, or loans from DFIs, SWFs, or subsidiaries.

Also Read: How Homegrown Kenyan Banks Like KCB, Equity, Can Drive National Growth – Insights by a Banking Economist

Banks also prepare for breaches of their Single Obligor Limits, set at 25% of their core capital, hedge their foreign currency risk, or designate Eurobonds they can repo. What this means for you is that dollars will be available for you to buy but at a higher exchange rate. Banks will be more willing to convert your USD loans into Kshs.

Diaspora Remittances

Banks prepare by increasing API integrations with International Money Transfer Operators and by running marketing campaigns in source markets. What this means for you is that you will be able to buy dollars, access dollar loans, and the USD/KES exchange rate will be subdued at a lower level.

Rising Non-Performing Loans

Banks prepare for this by buying credit risk guarantees from DFIS and SWFs, increasing loan loss provisioning, and diversifying to Non-Funded Income (NFI). What this means for you is that you will benefit from banks having a high appetite for lending and for innovation in payments, insurance, currency trading, and trade finance.

Government Edges Out MSMEs from Bank Credit

Banks prepare for this by aggressively growing their low-cost funding sources (current accounts and savings accounts (CASA) or cheap external borrowed funds); seeking credit-risk guarantees from DFIs and SWFs; and hedging their potential treasury securities mark-to-market (MtM) losses. What this means for you is that you will benefit from high returns on your fixed deposits, Money Market Funds (MMFs), Treasury bills and bonds, and USD cash holdings. This unfortunately also means high interest rates for your Kshs and USD loans.

Tips to Wananchi and MSMEs

1. Avoid foreign-currency loans unless you have export revenues.
2. Negotiate with your bank to convert your foreign currency into Kshs.

• The Dollar is strong during crises, so hold your dollars to keep or sell at the right moment.

1. Cash is king during crises, so maintain high liquidity in cash or near-cash, risk-free assets like Treasury Bills.
2. Pay off expensive loans with your cash or savings, as they would lose value due to high inflation.
3. Negotiate to extend the term of your bank loan to reduce the monthly installment.

Frequently Asked Questions (FAQs)

1. How do I know which bank is the safest during global economic crises? The banks with low non-performing loan ratios, high Kshs and USD liquidity ratios, high capital buffers, low mark-to-market losses on their treasury bond portfolios, and low trade finance off-balance sheet contingent liabilities.
2. Why do they experience extreme dollar scarcity when the economy is hit by global shocks? This is primarily because the demand for dollars exceeds the supply.

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