Data released by the Central Bank of Kenya (CBK) has revealed that nearly half of all banks in the country have yet to adopt the revised risk-based loan pricing model as the new reference in determining the interest rates earned on loans.
Central Bank Governor, on Wednesday, December 10, said that 48 per cent of all banks in Kenya were still using the Central Bank Rate (CBR) to determine loan rates.
He further noted that only 18 per cent of the banks had adopted the Kenya Shilling Overnight Interbank Average (KESONIA), which is the new loan pricing model, while 34 per cent of the commercial banks used a combination of CBR and KESONIA.
This comes three months after the regulator officially adopted the risk-based loan pricing model in a move aimed at enhancing transparency by banks in lending.
The Governor, who spoke during this year's last Monetary Policy Meeting, however, maintained that despite the low compliance with the new loan pricing model, all 37 banks in Kenya had already submitted their risk-based loan pricing formula.
"All the commercial banks have submitted their risk-based loan pricing formula that they will be implementing, as we have said in the past, and we expect this to be a very transparent process," the CBK Governor noted.
Adding, "Some of the banks have chosen to use the Central Bank Rate (CBR) as the reference rate, while others have chosen to use the KESONIA as the reference rate and yet others have chosen to use both."
In September this year, CBK formally announced the adoption of the risk-based loan pricing model, KESONIA, a shift from the CBR, which was solely determined by the regulator and passed through to commercial banks.
The Central Bank at the time said that the move would help promote responsible lending by aligning credit pricing with the borrowers' risk profiles.
According to CBK, the changes in loan issuance followed 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.
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.
