- High Court suspends Treasury approval requirement for banks seeking to raise loan interest rates.
- Order follows a legal challenge by the Kenya Bankers Association over Section 44 of the Banking Act.
- Borrowers are not automatically facing higher rates, but customers with variable rate loans should monitor lender communications.
Thousands of Kenyan borrowers face fresh uncertainty after the High Court suspended a rule requiring Treasury approval before banks raise loan rates.
The order, issued on August 13, 2026, follows a legal challenge by the Kenya Bankers Association (KBA), which has argued that the approval requirement contained in Section 44 of the Banking Act interferes with the constitutional independence of the Central Bank of Kenya (CBK) in formulating and implementing monetary policy.
Lenders have, for now, been given room to adjust loan interest rates upwards without first obtaining approval from the Treasury Cabinet Secretary, pending further directions in the ongoing appellate proceedings.
However, the development should not be interpreted as a blanket directive for banks to increase the cost of borrowing.
The High Court has not permanently invalidated Section 44, nor has it made a final determination that the provision is unconstitutional. Instead, it has issued a conservatory order suspending its application to the extent that it requires prior Treasury approval before an institution increases interest rates on loans.
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Why the court order matters
For ordinary borrowers, interest rates determine the total cost of credit across mortgages, personal loans, business facilities, school-fee loans and other forms of financing.
An increase in lending rates can translate into higher monthly repayments, particularly for borrowers whose loans are priced on variable or adjustable-rate terms.
Coming at a sensitive moment for households and businesses already grappling with the cost of living, elevated credit costs and broader economic uncertainty, the latest court order also revives a long-running debate over which institution should have the final authority in determining changes to lending rates: the National Treasury, the Central Bank of Kenya (CBK), or individual financial institutions.
At the centre of the dispute is Section 44 of the Banking Act, which provides that an institution may not increase its banking charges without prior approval from the Cabinet Secretary for the National Treasury.
How the dispute started
The controversy stems from a prolonged legal battle involving banks and borrowers over the interpretation and application of Section 44.
In June 2024, the Supreme Court ruled in the Stanbic Bank Kenya Limited v Santowels Limited case that banks could not increase loan interest rates without the approval contemplated under Section 44. The judgment reinforced the requirement for Treasury approval where lenders sought to adjust applicable rates upwards.
That ruling subsequently became a major point of contention within the banking industry.
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Kenya Bankers Association challenged this interpretation, arguing that interest rate adjustments are closely linked to monetary policy, a function constitutionally assigned to the Central Bank of Kenya.
It further contended that requiring Treasury approval could, in effect, introduce Executive influence into monetary-policy implementation.
The High Court, however, dismissed KBA’s constitutional challenge in its judgment of December 11, 2025, declining to declare Section 44 unconstitutional. The court held that the provision did not unlawfully infringe on the CBK’s constitutional mandate or independence.
KBA subsequently escalated the matter to the Court of Appeal.
Practically, the latest conservatory order has now temporarily altered the position pending determination of the appeal.
CBK and Treasury question
The dispute has become increasingly complex due to differing interpretations of the relationship between monetary policy and commercial lending rates.
CBK maintains that monetary-policy decisions should transmit directly through the banking system.
Speaking at the East Africa Banking School Conference on July 14, CBK Governor Kamau Thugge stated that when the central bank adjusts its policy rate, the change should be reflected in lending rates without requiring additional approval from the Treasury Cabinet Secretary.
“From the Central Bank’s point of view, the decisions from the courts have been that monetary policy is independent,” Thugge said, adding that changes in the policy rate should be transmitted promptly into lending rates.
This position has placed monetary-policy transmission and the statutory language of Section 44 at the centre of a complex legal and regulatory question.
What does this mean for borrowers?
The most important point for borrowers is that the High Court order does not automatically mean that banks will increase their loan interest rates.
Banks continue to price loans based on multiple factors, including prevailing monetary conditions, the cost of funds, credit risk, market competition and the specific terms of individual loan agreements.
For the time being, the order simply removes the requirement for prior Treasury approval within the scope covered by the court’s conservatory order.
Borrowers should therefore avoid assuming that their monthly repayments will immediately increase.
At the same time, customers with variable-rate facilities are advised to closely monitor communications from their lenders, as any future adjustments may affect repayment obligations depending on contractual terms.
CBK rate remains at 8.75 per cent
The court development comes shortly after the CBK maintained its Central Bank Rate at 8.75 per cent.
That decision was intended to anchor inflation expectations amid global economic uncertainties and risks associated with elevated international oil prices.
This means the court order and the CBK’s monetary-policy decision should not be conflated: the CBK rate is a monetary-policy instrument, while the court dispute concerns the legal framework governing how banks adjust lending rates.
A case with billions at stake
The legal dispute extends beyond a disagreement between banks and government institutions.
It could determine the speed at which monetary-policy changes are transmitted to borrowers and define the regulatory framework governing loan pricing in Kenya.
The Supreme Court’s earlier interpretation of Section 44 has already had significant implications for both banks and borrowers. In the Stanbic–Santowels dispute, the court examined the statutory requirement governing increases in loan interest rates and affirmed the importance of Treasury approval.
The ongoing litigation therefore carries potentially far-reaching consequences for Kenya’s financial sector.
The big question now
The latest High Court order has temporarily shifted the balance in favour of lenders, but the underlying legal dispute remains unresolved.
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The Court of Appeal will play a critical role in determining the next stage of the matter, while a final judicial determination is expected to clarify the relationship between Section 44 of the Banking Act, Treasury authority and the constitutional independence of the CBK.
For borrowers, the immediate message is clear: the court has not directed banks to increase interest rates, but it has temporarily suspended a key procedural requirement that previously mandated Treasury approval before such increases could be implemented.
Scrutiny over the cost of borrowing will therefore continue as the legal process unfolds.
For millions of Kenyans relying on bank credit to finance homes, businesses, education and household needs, the eventual outcome could shape not only who regulates loan pricing, but also how quickly changes in monetary policy are transmitted to the economy and ultimately to consumers.
By Hillary Muhalya
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