High Court Suspends Treasury Approval Requirement for Loan Rate Increases, Reopening the Section 44 Standoff Between Banks and the State

The order was granted in proceedings brought by the Kenya Bankers Association (KBA), which is appealing a 11 December 2025 High Court judgment that declined to strike down Section 44 as unconstitutional. Pending directions from the Court of Appeal, banks can adjust lending rates without Treasury sign-off. The ruling does not settle the underlying constitutional question. It is a temporary stay, not a final determination, and Section 44 remains on the statute book.

The development matters because it touches the balance between statutory consumer protection and the Central Bank of Kenya's constitutional independence over monetary policy. It affects how quickly changes in the CBK's benchmark rate reach borrowers, how banks price risk, and whether the estimated billions of shillings in disputed rate increases flagged in earlier litigation against individual banks remain exposed to refund claims. Stakeholders include commercial banks, microfinance banks, SACCOs regulated under similar frameworks, borrowers, the National Treasury, CBK, and the courts now seized of a separate consumer-protection petition raising overlapping issues. Legal, compliance, and treasury functions in every lending institution need to reassess pricing governance immediately, because the order can be varied or reversed with limited notice.

The conservatory order granted on 13 August 2026 reopens a dispute that many in the banking sector had assumed was closed after the High Court's December 2025 judgment. That judgment rejected KBA's argument that Section 44 of the Banking Act unconstitutionally interferes with CBK's independence in setting monetary policy, and it followed earlier rulings against Stanbic Bank and Spire Bank for repricing loans without Treasury approval. KBA gave notice of appeal and sought a stay of the provision pending that appeal. The High Court has now granted that stay, at least in part.

This matters beyond the immediate parties. CBK Governor Kamau Thugge told the East Africa Banking School Conference on 14 July 2026 that the central bank's position is that monetary policy transmission should not require ministerial clearance, arguing that rate changes should translate to lending rates without going through the Treasury Cabinet Secretary. That statement, made a month before the conservatory order, signals that CBK views the litigation as bearing directly on its constitutional mandate under Article 231 of the Constitution. At the same time, a separate petition filed in May 2026 by an individual petitioner seeks to restrain banks from unilateral rate variations on consumer-protection and fair administrative action grounds under Articles 46 and 47 of the Constitution. The interim order raises the question of how these two proceedings will be reconciled, and whether Treasury or Parliament will act to close any resulting gap before the Court of Appeal rules.

Section 44 of the Banking Act provides that no institution shall increase its rate of banking or other charges except with the prior approval of the Cabinet Secretary for the National Treasury. The provision predates the 2010 Constitution and has periodically resurfaced as a flashpoint between the banking industry and government, most visibly since 2016 when Parliament capped interest rates before that cap was itself struck down by the courts.

KBA's constitutional challenge rests on Article 231(2) and (3) of the Constitution, which vests CBK with responsibility for formulating monetary policy and promoting price stability, and which the association argues is undermined when a separate executive officeholder, the Treasury Cabinet Secretary, must clear lending rate changes. The association has run this argument through successive rounds of litigation. In earlier proceedings culminating around the Supreme Court, the courts affirmed that interest rates on loans and facilities advanced by banks remain subject to regulation under Section 44, rejecting the industry's position that the section is inoperative.

That line of authority produced consequences for individual banks. Stanbic Bank was ordered to refund a customer more than Sh10 million and Spire Bank was compelled to reduce an outstanding loan balance, after courts found both banks had repriced loans without the required Treasury approval. Those rulings, reported in December 2025, triggered warnings from legal commentators that banks across the sector could face an avalanche of similar refund claims running into billions of shillings, given how widespread unapproved rate variation appears to have been.

Against that backdrop, KBA returned to the High Court seeking to have Section 44 declared unconstitutional outright. The 11 December 2025 judgment declined to do so, holding that the provision does not conflict with the Constitution and does not undermine CBK's monetary policy role, and that it exists instead to protect borrowers from arbitrary unilateral rate changes. KBA gave notice of appeal to the Court of Appeal and applied for conservatory relief pending that appeal. The application succeeded on 13 August 2026, with KBA represented by Dentons Hamilton Harrison & Mathews, in proceedings naming the Attorney General and the Treasury Cabinet Secretary as respondents and CBK as an interested party.

Separately, CBK's own regulatory posture has hardened around the same period. The central bank held its benchmark lending rate at 8.75% for a third consecutive Monetary Policy Committee sitting, citing the need to keep inflation expectations anchored amid global oil price pressures. Governor Thugge's July 2026 remarks make clear that CBK does not consider Treasury approval necessary for rate transmission, positioning the regulator closer to KBA's argument than to the Treasury's statutory role under Section 44.

The conservatory order changes the enforcement landscape without changing the law. Section 44 remains valid legislation. What the order removes, for now, is the practical consequence of non-compliance: a bank that raises rates today without Treasury approval is not currently exposed to the same enforcement risk that produced the Stanbic and Spire outcomes, because the requirement itself has been stayed. This is a narrow but consequential distinction. Institutions that relied on the December 2025 judgment to build compliance processes around Treasury sign-off now operate in a period where that process is legally optional, but only until the Court of Appeal rules or issues further directions, at which point the requirement could snap back into force with retrospective exposure for rate changes made during the interim period. Nothing in the order forecloses that possibility, and banks should not treat the stay as durable relief.

Boards of lending institutions need visibility into how their treasury and pricing committees are using this window. A decision to increase rates during the currency of the conservatory order is a board-level risk decision, not a purely operational one, given the possibility of the order being reversed or narrowed. Boards should require management to document the rationale, timing, and magnitude of any rate change made during this period, and to link that documentation to specific CBK Monetary Policy Committee decisions where possible, since a defensible link to monetary policy transmission strengthens the institution's position if the litigation eventually turns on that distinction.

For Legal Counsel

Review the scope of the conservatory order carefully against the specific loan products and charges the institution intends to reprice. Track the Court of Appeal docket for hearing dates and interim directions. Assess exposure under the separate May 2026 consumer-protection petition, which raises overlapping issues under Articles 46 and 47 that are not resolved by the Section 44 stay.

For Compliance Teams

Keep existing Section 44 approval workflows intact as an internal control rather than dismantling them, and require documented sign-off and rationale for any rate change made during the stay. Prepare a contingency process for immediate reversion to mandatory Treasury approval if the order lapses or is varied.

For Risk Managers

Model the financial impact of a scenario in which the Court of Appeal reinstates Section 44 with retrospective effect, including potential refund liability on rate increases made during the interim period. Flag this litigation as a live regulatory risk in board risk reporting until the Court of Appeal rules.

The 13 August 2026 conservatory order gives banks temporary relief from a decades-old statutory approval requirement, but it settles nothing permanently. Section 44 remains law, the December 2025 judgment upholding it stands unless and until the Court of Appeal says otherwise, and institutions that reprice loans during this window do so against a live possibility of reversal. The broader significance lies in the unresolved tension between CBK's constitutional independence over monetary policy and Treasury's statutory role in approving bank charges, a tension that litigation alone is unlikely to close cleanly. For legal, compliance, and risk functions, the sound approach is to use the interim period cautiously, document decisions defensibly, and prepare for either outcome at the Court of Appeal rather than treating the current position as settled.