Editor's Review

The Central Bank of Kenya has unveiled a revised risk-based credit pricing model (RBCPM) for banks.

The Central Bank of Kenya (CBK) has unveiled a revised risk-based credit pricing model (RBCPM) for banks.

In a statement on Tuesday, August 26, CBK said the revised RBCPM will take effect from September 1, 2025, for all new variable rate loans.

For existing variable-rate loans, the revised RBCPM will take effect on February 28, 2026, following a six-month transition period.

CBK explained that the new RBCPM was developed following consultations with diverse stakeholders, including banks, development partners, industry associations, non-bank financial institutions, consultancy firms, academia, corporate firms, and individuals.

According to CBK, the revised RBCPM is aimed at strengthening the monetary policy and enhancing transparency in lending.

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File image of CBK Governor Kamau Thugge.

“These comments were duly reviewed and considered in finalizing the revised RBCPM. The objective of the revised RBCPM is to strengthen monetary policy transmission, enhance transparency in lending, and promote responsible lending by aligning credit pricing with the borrowers’ risk profiles,” CBK stated.

The revised risk-based credit pricing model is based on the overnight interbank average rate, now renamed the Kenya Shilling Overnight Interbank Average (KESONIA).

In the revised RBCPM, the lending rate will be calculated as KESONIA plus a premium (“K”) that accounts for lending costs, expected returns to shareholders, and borrower risk.

“KESONIA will be applicable to all variable-rate loans except for foreign-currency-denominated loans and fixed-rate loans,” CBK stated.

CBK further stated that in cases where KESONIA is not practical, customers may use the Central Bank Rate (CBR) as an alternative reference rate.

The revised RBCPM comes weeks after CBK reduced its Central Bank Rate (CBR) to 9.50% from 9.75%.

In a statement on August 12, CBK Governor Kamau Thugge said the reduction of the CBR is aimed at stimulating lending by banks to the private sector and supporting economic activity.

“The Committee therefore concluded that there was scope for a further easing of the monetary policy stance to augment the previous policy actions aimed at stimulating lending by banks to the private sector and supporting economic activity, while ensuring inflationary expectations remain firmly anchored, and the exchange rate remains stable,” said Thugge.

The CBK Governor said the Monetary Policy Committee (MPC) will monitor the impact of the policy decision alongside global and domestic economic developments.