The Central Bank of Kenya has formally adopted the revised risk-based credit pricing model as the new reference in determining the interest rates earned on loans acquired through commercial banks in Kenya.
The move is a paradigm shift from the initial Central Bank Rate (CBR), which was solely determined by the regulator and passed through to commercial banks.
In a statement on Tuesday, August 26, CBK Governor Kamau Thugge said that beginning September 1 this year, all new variable rate loans would be priced under the revised risk-based credit pricing model.
Similarly, the regulator noted that the existing variable-rate loans would shift to the new system beginning February 28, 2026, after a 6-month transition period.
According to the Central Bank of Kenya (CBK), the changes follow a consultation period announced in April, during which the regulator engaged a wide range of stakeholders to develop the model.
"Comments were received from diverse stakeholders, including banks, development partners, industry associations, non-bank financial institutions, consultancy firms, academia, corporate firms and individuals," CBK stated.
The regulator added, "These comments were duly reviewed and considered in finalising the revised risk-based credit pricing model."
CBK further noted that the move forms part of ongoing efforts to strengthen monetary policy transmission by enhancing transparency in lending.
The Central Bank stated that the decision would also help promote responsible lending by aligning credit pricing with the borrowers' risk profiles.
CBK further emphasised that the revised risk-based credit pricing model is anchored on the overnight interbank average rate, now renamed the Kenya Shilling Overnight Interbank Average (KESONIA), in line with international best practices.
Under the new formula, a commercial bank’s total lending rate will be calculated as KESONIA plus a premium ("K"). The premium will cover lending costs, shareholder returns, and the borrower’s risk profile.
"KESONIA will apply to all variable-rate loans except for foreign currency-denominated loans and fixed-rate loans. Where KESONIA is not practical, customers may avail the use of the CBR as the alternative reference rate," CBK affirmed.
"To ensure transparency, the banks will publish on their websites and on the Total Cost of Credit (TCC) website their weighted average lending rates," it added.
