The boards of all licensed banks have until this November to approve a new loan pricing prescribed by the Central Bank of Kenya(CBK) – which must then be implemented by February 2026. Banks are also required to publish their average weighted lending rates, weighted average premium and fees for each lending product and Total Cost of Credit (TCC) on their websites.
The new loan pricing model calculates total cost of credit as KESONIA (Kenya Shilling Overnight Interbank Average (KESONIA) plus a premium that covers lending costs, return to shareholders, borrower-specific factors and applicable fees.
The model will provide a transparent anchor rate while banks retain the flexibility in setting borrower- specific premiums. While the CBK has been aggressive in the last one year, in its policy rate cuts, banks have been slow to respond. Some banks have deviated from pricing loans based on individual borrower risk and are instead relying on segmented customer categories.
Others have been found to inflate their lending rates by charging excessively high risk premiums that do not reflect borrower profiles. Some lenders have been loading unaccounted levies on their loan prices, hiding this information in the fine prints published in the various loan brochures.
> Standard Group Cuts Losses, Giving Hope For Recovery
“There is no guarantee that the new loan pricing model will work. However, Kenya’s financial sector has evolved in recent years, with more intense competition as well as better enforcement of regulations by the CBK. There is also a political aspect to this new loan price model,” said CFA Dedan Maina, Investment Consultant & Business Growth Strategist.
A new pricing model for banks comes at a time when Kenya’s stock of Treasury Bills – a favourite investment option for banks – has dropped by the largest margin this year. The Kenya government has shifted its borrowing strategy, leaning away from short-term debt to longer-term papers that provide Treasury with stability in debt servicing.
Analysts maintain that with borrowers becoming more knowledgeable and informed on financial matters, banks are likely to switch to the new loan pricing model. This is because the savvier borrowers will opt for banks that are more transparent and have no hidden costs. The new model is structured in a way that allows borrowers to have a 360 degrees’ view of all fees, charges and costs.
“By aligning credit pricing with risk profile of borrowers, CBK aims to promote responsible lending practices and reduce the risk of defaults. Consumers will also be empowered with clearer information when comparing the price of loan products,” said Maina.
Figures from CBK show that banks average weighted lending rates as at July 2025 were: a Deposit rate of 8.07%, Savings at 3.76%, Lending Rate at 15.24% and Overdraft rate of 13.61%.
Data from CBK shows that at the end of 2024, Middle East Bank (K) Limited had the most expensive loan offer, priced at an average lending rate of 22%. The lender was followed by Credit Bank PLC at 20.41 per cent and HFC Limited at 20.17 per cent. SBM Bank Kenya Limited and Absa Bank Kenya PLC offered rates of 19.44 per cent and 18.95 per cent, respectively.
These figures highlight the wide disparity in the price that lenders charge borrowers across the market, with some charging higher than others for loans.
> Little-Known Billionaire Behind West Valley Sugar Factory in Kericho
Leave a comment