The Central Bank of Kenya (CBK) has granted commercial lenders additional time to transition to a new loan pricing framework, following concerns that the initial deadline was too short.
Banks will now be required to apply the revised model to new loans from December 1, 2025, and to existing loans from March 1, 2026. The regulator had earlier directed lenders to switch by September 1, 2025, a timeline the banking industry argued was impractical.
Under the new framework, loan pricing will be anchored on the Kenya Shilling Overnight Interbank Average Rate (KS-O/N) as a common benchmark. Each bank will then add a risk-based premium, known as K, which reflects operational costs, target returns, and the borrower’s risk profile.
Before rolling out the new model, lenders must seek board approvals, although CBK has allowed them to continue using their current risk-based pricing for new loans in the interim, on condition that customers are kept informed.
CBK explained that the existing setup, where each bank maintained its own base lending rate, undermined monetary policy transmission and limited transparency. Borrowers often struggled to compare loan offers across institutions.
The regulator expects the new interbank-linked system to enhance transparency, speed up policy transmission, and empower borrowers to shop for better deals in the market.
