Kenya’s largest lenders are reverting to the Central Bank Rate (CBR) as the benchmark for pricing new shilling-denominated loans, marking a surprising shift in the industry’s stance just months after banks strongly opposed the model.
Equity Group and KCB — the country’s two biggest lenders by market capitalisation and assets — on Wednesday announced that all new Kenya-shilling loans issued from December 1 will now be priced using the revised CBR of 9%.
This follows the Central Bank of Kenya’s (CBK) ninth consecutive rate cut on Tuesday, after the Monetary Policy Committee lowered the policy rate by 25 basis points to stimulate private sector credit amid subdued inflation.
In statements to customers issued on Wednesday, the banks framed the move as consistent with the transition to the new Risk-Based Pricing (RBP) framework. But industry observers note that the regulator’s reform was actually designed around a different reference rate: the Kenya Shilling Overnight Interbank Average Rate (KESONIA).
A model built on KESONIA — but banks shift elsewhere
KESONIA, which is the new name for existing overnight interbank rate, was adopted as the core benchmark for all variable-rate shilling loans under CBK’s July reforms. The rate is published daily by the central bank, reflecting the average cost at which banks lend to one another overnight.
Under the new framework, lenders are expected to price loans as:
Total lending rate = KESONIA + Premium (K)
where “Premium” includes risk, operating costs and return to shareholders.
But despite KESONIA being readily available — it stood at 9.1% on Wednesday — banks are now anchoring their pricing on the CBR instead. Equity, for instance, told customers:
“All new local currency variable-rate loans, effective 10 December 2025, will be priced under the revised CBR of 9%, plus the applicable customer premium (K). This change will also affect facilities issued after 1 December 2025, where such facilities pricing will accordingly be adjusted by the reduction in CBR from 9.25% to 9% effective immediately.”
While the use of CBR is not prohibited, CBK rules say it should only serve as a fallback when the interbank rate is “impractical” or “unavailable” — conditions that do not apply.
A sudden U-turn
The sector’s pivot is striking because the Kenya Bankers Association (KBA) strongly opposed CBR-anchored pricing in May, warning it would distort credit markets and depart from Kenya’s liberalised rate-setting regime.
At the time, banks argued that using CBR as the benchmark would weaken the transmission of monetary policy, risk re-introducing price controls, and undermine credit expansion to SMEs. Lenders instead backed the interbank rate as a more market-sensitive anchor.
The latest shift therefore represents a quiet reversal of that position, one likely driven by the CBK’s aggressive easing cycle and the industry’s preference for a more stable, predictable benchmark during transition.
Existing loans to transition by February
Both KCB and Equity said existing variable-rate loans will remain under current terms until the end of the transition window on February 28 2026.
Equity added that customers will receive a 30-day notice as their facilities move from the Equity Bank Reference Rate (EBRR) to the CBR plus customer-specific premium in line with the requirements of the CBK’s new pricing model.
Credit growth strengthens as rates fall
Lower interest rates are already filtering through the economy. Private sector lending grew 6.3% in November, the fastest expansion since April 2024, up from 5.9% in October, according to CBK.
“Growth in credit to key sectors of the economy… remained strong in November,” the apex bank said, citing manufacturing, construction, trade and consumer durables.
NPL pressures are also easing. The ratio of gross non-performing loans fell to 16.5% in November from 16.7% in October and 17.6% in August, with improvements in mining, energy, transport and household segments.
The central bank expects GDP growth of 5.2% this year, rising to 5.5% in 2026, supported by resilient industrial activity and service sector strength.
For now, the banking sector’s quiet return to CBR-linked pricing raises questions about the long-term implementation of Kenya’s lending reforms and whether market forces or regulatory guidance will ultimately shape the next phase of credit pricing.
