The Central Bank of Kenya (CBK) has issued new guidelines that will assist banks to price their loans to retail customers. The Risk-Based Credit Pricing Model (RBCPM) takes effect on 1st September 2025. Banks have a window of six months to revise rates currently charged on already existing loans on their books. The new tool is expected to provide relief to borrowers, who have experienced slow response from banks despite CBK pushing them to lower cost of money.
In a statement, the CBK said this new tool is the product of public participation and consultation, which began on 23rd April, 2025. Views were collected from diverse stakeholders including banks, development partners, industry associations, non-bank financial institutions, consultancy firms, academia, corporate firms and individuals. CBK is seeking to strengthen transmission of its decisions on the benchmark Central Bank Rate (CBR), a tool that signals how banks should lend to customers.
This new loan pricing model is linked to movements in the overnight interbank average rate as well as the CBR. The Kenya Shilling Overnight Interbank Average (KESONIA) will be applicable to all variable rate loans except for foreign currency denominated loans and fixed rate loans. Where this average is not applicable, banks will use the Central Bank Rate (CBR) as an alternative reference rate.
CBK will now require banks to publish on their websites and on the Total Cost of Credit (TCC) website at CBK, their weighted average lending rates, weighted average premium (K), and fees and charges for each of their lending products. Commercial banks will also be required to update their internal documentation, system references, pricing models, and legal agreements to reflect the new loan pricing model.
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The Kenya Shilling Overnight Interbank Average will be published daily by the Central Bank of Kenya on its website and included in relevant market data feeds and reports. “We anticipate that the revised model will enhance pricing transparency, with lending rates more effectively aligned within the monetary policy corridor set by the CBR, ensuring market consistency and effective policy control. As such, the transmission of rate cuts is expected to be nearly instantaneous,” said a research note from Standard Investment Bank (SIB).
SIB adds that since the interbank rate (KESONIA) will be compounded in arrears – meaning interest will not be fixed at loan issuance but calculated at the end of the interest period by compounding daily overnight rates, thereby enhancing predictability – this is a big plus for borrowers.
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