KBA welcomes the Revised Loan Pricing Formula by CBK

The change will facilitate greater access to bank credit for both individuals and businesses, enhancing the banking sector’s capacity to support Kenya’s economic growth.

The framework also promotes transparency by requiring banks to disclose all the components that make up interest rates, giving borrowers a clear and comprehensive understanding of loan interest rates.

It further integrates a borrower’s credit history as a key pricing factor, making past repayment behaviour an important determinant of loan interest.

The shift is expected to significantly expand access to credit for previously underserved groups, including MSMEs, youth, persons with disabilities, and women-led enterprises.

It will also strengthen the transmission of monetary policy decisions, ensuring that changes in the policy rate are more directly and efficiently reflected in the cost of credit across the banking sector.

A key feature of the new framework is the introduction of the Kenya Shilling Overnight Interbank Average (KESONIA) as the common base rate for all variable-interest loans.

Under the structure, the variable-interest rate offered to a customer will consist of the KESONIA base rate plus a premium that reflects their individual risk profile.Borrowers who maintain good credit scores will, therefore, secure loans at lower rates.

The transition will be implemented over the next six months. From September 1 to November 30, 2025, banks will review and update their loan pricing models, and seek approvals from their respective Boards of Directors.

Once approved, banks will begin issuing new variable-rate loans using KESONIA as the base rate. All existing variable-rate loans will migrate to the revised framework by February 28, 2026.

The banking industry recognizes the important regulatory role CBK has played in guiding the sector to enhance transparency, strengthen customer centricity, ensure ethical banking practices, and roll out the revised risk-based pricing of credit.