Nearly half of Kenya’s commercial banks are yet to transition to the country’s new risk-based loan pricing framework, three months after the Central Bank of Kenya (CBK) officially rolled it out.
Fresh data from the regulator shows that 48 per cent of banks are still relying on the Central Bank Rate (CBR) as the main benchmark for setting lending rates—despite the CBK directing lenders to shift to the new model aimed at enhancing transparency and aligning credit costs with borrowers’ risk profiles.
Speaking on Wednesday, December 10, during the final Monetary Policy Committee meeting of the year, CBK Governor revealed that the uptake of the new framework remains slow.
According to the Governor, only 18 per cent of banks have fully adopted the new Kenya Shilling Overnight Interbank Average (KESONIA) the reference rate at the heart of the risk-based pricing model. A further 34 per cent have opted for a blended approach, using both the CBR and KESONIA when determining what customers pay for loans.
Despite the sluggish transition, the Governor stressed that all 37 commercial banks have now submitted the risk-based pricing formulas they intend to use a key requirement as Kenya shifts toward a more transparent lending environment.
“All the commercial banks have submitted their risk-based loan pricing formula that they will be implementing,” the Governor said. “We expect this to be a very transparent process. Some banks have chosen to use the CBR, others KESONIA, and yet others have decided to use both as reference rates.”
A Major Shift in Lending
The CBK announced the adoption of KESONIA in September, formally replacing the CBR as the sole reference rate used across the banking sector.
The regulator said the transition would promote responsible lending by ensuring that customers with lower risk profiles are not charged the same rates as high-risk borrowers. The approach is also expected to improve competition among banks and protect borrowers from arbitrary cost adjustments.
Before unveiling the new system, the CBK engaged a wide range of stakeholders over several months, following a call for public input in April.
“Comments were received from diverse stakeholders, including banks, development partners, industry associations, non-bank financial institutions, consultancy firms, academia, corporate firms and individuals,” CBK noted.
How the New Model Works
Under the revised pricing structure, a bank’s lending rate will now consist of KESONIA plus a premium, commonly referred to as “K.”
This premium factors in the bank’s operating costs, shareholder returns, and most importantly the borrower’s individual risk profile.
The CBK expects the model to bring greater fairness to lending, with better-managed borrowers potentially enjoying lower interest rates.
However, with nearly half of the banks yet to fully embrace the new benchmark, the regulator may need to push for faster compliance as the country moves into 2026 with heightened concern over the cost of credit.
