Kenya’s largest commercial banks have adopted different approaches to the Central Bank of Kenya’s revised risk-based credit pricing framework, exposing uneven implementation of a reform intended to improve transparency and strengthen monetary policy transmission.
The CBK introduced the updated model in August 2025, replacing bank-specific base lending rates with a common reference-based structure. However, the regulator did not issue binding enforcement guidance requiring exclusive use of the Kenya Shilling Overnight Interbank Average (KESONIA), leaving lenders with discretion on how to implement the transition.
KESONIA, which is published daily by the CBK and derived from actual overnight interbank transactions, was identified as the preferred market-based benchmark. The rate is designed to reflect real-time liquidity conditions and reduce subjectivity in loan repricing.
Co-operative Bank has opted for full adoption of the market-linked approach. The lender announced that all existing variable-rate Kenya shilling facilities will transition to pricing based on KESONIA plus a customer-specific risk premium, effective 28 February 2026. Under this structure, lending rates will adjust automatically in line with movements in interbank liquidity.
Other major lenders have taken a more policy-linked route. Equity Bank and Diamond Trust Bank have confirmed that existing variable-rate facilities will continue to be repriced using the Central Bank Rate plus a customer-specific margin. Under this model, interest rate adjustments will occur following Monetary Policy Committee decisions rather than through continuous market repricing.
KCB Bank has similarly anchored its framework on the Central Bank Rate. The bank said new Kenya shilling variable-rate facilities issued from 1 December 2025 are priced using CBR as the common reference rate. Existing facilities issued on or before 30 November 2025 will be transitioned to the revised model based on outstanding balances as at 28 February 2026, with repricing taking effect from 1 March 2026. KCB added that existing customers will not be subject to new fees or charges applicable to new facilities.
While KESONIA and the Central Bank Rate have historically moved in close alignment, their structures differ significantly. The CBR reflects policy direction and changes in discrete steps, while KESONIA adjusts continuously based on liquidity conditions in the interbank market.
As Kenya begins into 2026, the banking sector now operates under a unified risk-based pricing framework but with a clear split between market-linked and policy-linked loan repricing. The divergence is expected to influence the timing, volatility and predictability of borrowing costs for households and businesses as monetary conditions evolve.
