While ordinary Kenyans struggle with the crushing cost of living, the country’s banking sector is quietly engineering a profit boom at their expense. New data reveals that commercial banks have widened their lending margins to a record 7.48 percent, effectively hoarding the benefits of economic policy while passing the pain onto depositors.

The numbers, stark and unforgiving, tell a tale of corporate greed. Despite the Central Bank of Kenya (CBK) cutting its benchmark rate to signal cheaper credit, banks have been sluggish to lower the cost of loans. Conversely, they have been aggressively slashing the interest rates paid to depositors. The result is a widening chasm—the lending margin—that is funneling billions of shillings directly into bank profits while savers see their returns evaporate.

The Mechanics of the Squeeze

Analysis of the sector`s performance shows that the average lending rate remains stubbornly high at 14.48 percent, while the deposit rate has plummeted to just 7.0 percent. This disconnect is not accidental; it is a strategic choice. By keeping loan rates high and deposit rates low, banks are insulating themselves against economic headwinds, using their customers’ deposits as cheap capital to fund expensive loans.

The disparity is even more glaring when compared to the previous year. Lending margins have jumped from 5.74 percent in late 2024 to the current 7.48 percent. This 1.74 percentage point increase represents massive value transfer from the pockets of savers to the bank`s bottom line. The top eight banks alone have seen their margins widen by over Sh24 billion in just nine months.

• The CBK impotency: The Central Bank has made ten consecutive cuts to the Central Bank Rate (CBR), now at 8.75 percent, hoping to stimulate the economy. The banks have largely ignored this signal, proving that moral suasion is failing against the profit motive.
• The Treasury Bill Factor: With returns on government securities (Treasury bills) falling to below 8 percent, banks no longer have an easy, risk-free place to park cash. To maintain their record profits, they have turned on their depositors, cutting rates to maintain their spread.
• The Losers: The biggest losers are the retirees and pension funds who rely on fixed deposit interest. Their income has effectively been slashed by 25 percent in a year where inflation is still biting.

A Sector Out of Touch?

This trend reinforces the perception that Kenyan banks are fair-weather partners to the economy. In good times, they reap the rewards; in bad times, they squeeze the customer to protect their dividends. The term "Greedflation"—using inflation as an excuse to hike margins—fits the scenario perfectly.

As the CBK meets again to deliberate on policy, the question is whether they will finally crack the whip on a sector that seems to view its customers not as partners, but as prey. Until then, the message from the banks is clear: heads we win, tails you lose.