Banks can raise loan interest rates without Treasury approval, for now; High court

The High Court has issued conservatory orders suspending the application of Section 44 of the Banking Act in so far as it requires banks and other licensed institutions to obtain prior approval from the Cabinet Secretary for the National Treasury before increasing interest rates charged on loans.

The order was issued in a ruling delivered on Thursday, August 13, 2026, following a petition by the Kenya Bankers Association (KBA).

According to Dentons Hamilton Harrison & Mathews, which is representing KBA in the case, the conservatory order will remain in force pending further orders from the Court of Appeal in KBA’s appeal against an earlier judgment.

The immediate effect is that institutions licensed under the Banking Act will not be required to seek prior approval from the Cabinet Secretary before increasing interest rates charged on loans, pending further directions from the Court of Appeal.

The ruling revives a contentious legal and policy debate over who has the final say when commercial banks adjust lending rates.

The Bankers Association has challenged Section 44 on constitutional grounds, arguing that decisions on interest rates are closely linked to monetary policy, an area in which the Central Bank of Kenya (CBK) is constitutionally independent.

The association maintains that requiring approval from the Treasury Cabinet Secretary before banks can increase lending rates interferes with the independence of the CBK in formulating monetary policy.

This follows a High Court judgment delivered on December 11, 2025, in which the court declined to declare Section 44 unconstitutional.

KBA subsequently gave notice of its intention to appeal the decision to the Court of Appeal and sought orders suspending the operation of the provision while the appeal is determined. The conservatory order grants that request, at least temporarily.

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The temporary order also comes following remarks by CBK Governor Dr Kamau Thugge in July, when he addressed the issue of how changes in the Central Bank Rate should translate into commercial lending rates.

The Governor said the position reflected the Central Bank’s understanding of the constitutional independence of monetary policy.

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He further indicated that while banks were expected to respond immediately when the policy rate was raised, the same principle should apply when the CBK lowered its policy rate.

The High Court’s order comes after an earlier Supreme Court decision that affirmed the regulatory force of Section 44.

In Stanbic Bank Kenya Limited v Santowels Limited, the Supreme Court considered whether banks could increase loan interest rates without obtaining the approval required under Section 44 of the Banking Act.

The Supreme Court held that the provision covers interest rates charged on loans, rejecting arguments that interest rates had become completely liberalised following changes to the regulatory framework.

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