Judge temporarily suspends Treasury loan rate approval rule

The High Court has temporarily suspended Section 44 of the Banking Act, which requires financial institutions to obtain approval from the Treasury Cabinet Secretary before increasing loan interest rates.

The court granted the Kenya Bankers Association a stay pending an appeal. It said failure to do so could cause significant and lasting disruption to the banking industry if the appellate court later finds the provision unconstitutional.

The judge also noted that such a decision could trigger widespread litigation over interest rates charged in the past. “These issues and losses cannot be easily fixed with damages, making the appeal mostly futile,” the court said.

The Kenya Bankers Association challenged Section 44 on the grounds that interest-rate adjustments are a key instrument of monetary policy. Requiring approval from the Cabinet Secretary, even when the Central Bank of Kenya directs such adjustments, would give the Treasury supervisory or veto powers over the central bank’s monetary operations.

The association argued that this arrangement undermines the constitutional independence of the Central Bank of Kenya, as affirmed by the Supreme Court in March 2025. It said requiring executive approval for interest-rate adjustments infringes on the Central Bank’s autonomy because such adjustments form an integral part of monetary policy.

The High Court had dismissed the association’s case in December 2025. It found that Section 44 did not interfere with the Central Bank’s constitutional mandate under Article 231(2) and (3). The court also held that the association had failed to demonstrate any inconsistency between the provision and the Constitution.

The association returned to court in January seeking temporary orders pending an appeal. It argued that it was not asking the High Court to reinterpret Section 44, but to determine whether the provision, as interpreted by the Supreme Court, is consistent with Article 231 of the Constitution.

The association said that although the Supreme Court had previously interpreted and enforced Section 44, that did not amount to a direct determination of the provision’s constitutionality. Maintaining the regulatory position that existed during the trial would promote stability in the financial sector while the Court of Appeal determines the dispute.

The court noted that the Central Bank of Kenya, the Attorney-General and the Treasury Cabinet Secretary did not file responses or submissions opposing the application. This left the association’s factual assertions unchallenged.

“I’m inclined to grant an order of stay for a limited period,” the judge said. The judge subsequently granted the order suspending the implementation and operation of Section 44, to the extent that it requires financial institutions to obtain prior approval from the Treasury Cabinet Secretary before increasing loan interest rates, pending further directions of the Court of Appeal.

In the December judgment, the judge had held that while the Central Bank may influence market interest rates, the actual pricing of loans by private banks is a commercial decision. Parliament was constitutionally permitted to regulate such commercial conduct to protect consumers and promote fairness in the credit market.

“Section 44, therefore, falls squarely within the realm of consumer and market regulation, not monetary policy,” the judge said at the time. The temporary suspension now leaves the requirement for Treasury approval on hold while the appeal proceeds.