NAIROBI, Kenya – KCB Bank Kenya Ltd is set to become one of the first major financial institutions in the country to implement a new loan pricing system, mandated by the Central Bank of Kenya (CBK), starting Monday, December 1, 2025. This transition to a revised Risk-Based Credit Pricing Model (RBCPM) marks a significant shift in how the cost of borrowing is determined for millions of Kenyans and is aimed at making lending rates more transparent and responsive to monetary policy.

In a notice to its customers, KCB, the nation's largest lender by asset base, confirmed that all new local currency variable-rate loans issued from that date will be priced under the new framework. Existing variable-rate loans are scheduled to be transitioned to the new model by February 28, 2026, in line with the deadline set by the banking sector regulator.

A New Era for Lending

The new model represents a fundamental overhaul of credit pricing in Kenya. For years, the lending landscape has been criticized for its opacity and the slow pace at which commercial banks pass on the benefits of lower central bank rates to borrowers. CBK Governor Kamau Thugge has previously expressed frustration with this slow transmission, noting that lenders are often quick to increase borrowing costs when the CBK tightens policy but slow to lower them during easing cycles.

Under the revised framework, the interest rate on a loan will be calculated based on two main components: a common reference rate and a customer-specific premium. The reference rate will be the Kenya Shilling Overnight Interbank Average (KESONIA), which is the average rate at which banks lend to each other overnight. This aligns Kenya with international best practices, similar to the SONIA rate in the UK and SOFR in the US. The Central Bank Rate (CBR) will serve as a fallback reference rate where KESONIA is not practical.

Added to KESONIA will be a premium, denoted as “K,” which will be unique to each borrower. This premium will cover the bank's operational costs, its expected return to shareholders, and, crucially, the borrower's individual risk profile. The total cost of credit will also include a full, transparent disclosure of all additional fees and charges.

Implications for Kenyan Borrowers

The primary goal of this reform is to foster a fairer and more transparent credit market. For the Kenyan public, this change brings both opportunities and potential challenges. The most significant advantage is the increased transparency; banks will be required to publish their weighted average lending rates, premiums, and all associated fees on their websites and on the CBK's Total Cost of Credit (TCC) portal. This will empower consumers to compare loan products more effectively across different institutions.

Borrowers with a strong credit history and a low-risk profile stand to benefit from lower interest rates, as their individual risk premium (“K”) will be smaller. Conversely, individuals and businesses deemed higher-risk due to factors like irregular repayment history may face higher borrowing costs. This shift incentivizes financial discipline among borrowers seeking to access more affordable credit.

The move by KCB puts pressure on other tier-one lenders to comply with the CBK's December deadline. NCBA Group is among other major banks that have indicated they are updating their systems and policies to align with the new guidelines. The Kenya Bankers Association (KBA) has endorsed the new framework, stating that it will expand access to credit for households and businesses.

The Regulatory Push for Transparency

The rollout of the RBCPM follows extensive consultations that began in April 2025 between the CBK, commercial banks, and other industry stakeholders. The CBK's directive, issued in August 2025, mandated that all new variable-rate loans from September 1, 2025, should adopt the new model, with a full transition for all existing variable-rate loans by February 28, 2026.

The regulator's insistence on this reform is a direct response to the banking sector's historical reluctance to adjust lending rates downwards in line with monetary policy easing. By anchoring loan prices to a market-driven benchmark like KESONIA, the CBK aims to create a more direct and efficient channel for its monetary policy decisions to influence the broader economy. As KCB leads the charge among major banks, the coming months will be a critical test for the new model and its ability to deliver on the promise of a more equitable and transparent lending environment for all Kenyans.