A new, uniform loan pricing formula has officially come into effect, following an agreement between the Central Bank of Kenya (CBK) and all 37 commercial banks.
The CBK has introduced the revised Risk-Based Credit Pricing Model (RBCPM), which is anchored on the Kenya Shilling Overnight Interbank Average (KESONIA). This framework marks a significant departure from previous fragmented approaches to setting interest rates.
According to the Central Bank, this fundamental change is designed to make lending across the industry fairer, more transparent, and more responsive to real-time market conditions. The KESONIA benchmark rate is expected to provide greater clarity for consumers on how their interest rates are calculated.
The transition process is already underway, with all new local currency variable-rate loans issued from December 1, 2025, adhering to the new KESONIA-based pricing.
Furthermore, existing variable-rate loans must be converted to the new framework by February 28, 2026, with banks required to notify customers at least 30 days in advance of the change.
This phased approach ensures a smooth transition for both banks and borrowers, though foreign currency, fixed-rate, and flat-rate facilities are excluded from this change.
KESONIA serves as the public, market-driven base rate, replacing the reliance on the Central Bank Rate (CBR) as the primary determinant.
The premium ("K") is the bank-specific margin that incorporates factors unique to the borrower and the bank, including the individual's credit risk, the bank's operational costs, and the required shareholder return.
This structure provides transparency by clearly separating the market rate from the risk premium, enabling borrowers with strong credit profiles to potentially access loans at more competitive rates. The CBK requires public disclosure of these components, enabling greater clarity and comparability through the Total Cost of Credit (TCC) portal.
Tags: Absa Bank Cbk Equity Bank Standard Chartered Bank KCB Bank
Share this article
Selestine Nyongesa
Experienced and versatile writer, dedicated to using my exceptional writing and editing skills to inform and advocate. My work focuses on educating and entertaining readers on a range of topics, with a particular expertise in matters of disability.