A fresh push by the Central Bank to bring order and clarity to how banks price loans has taken a different turn after nearly half of all lenders chose to stick with the Central Bank Rate instead of the intended Kesonia benchmark, creating a mixed system that leaves borrowers without a single reference point to assess the cost of credit.
The regulator confirmed that lenders have settled on varying benchmarks as they roll out the revised risk-based pricing model, meaning customers will now rely on different base rates depending on the bank.
While the plan was for all lenders to anchor the new formula on the Kenya Shilling Overnight Interbank Average, many have instead chosen the backup option allowed by the regulator.
The CBK said the Kesonia rate was meant to support its monetary policy decisions by strengthening the link between its actions and the prices customers pay for loans. However, banks were permitted to fall back on the Central Bank Rate in cases where the interbank benchmark was considered difficult to apply.
This divergence now means borrowers cannot directly compare loan prices across banks, since each institution can choose either of the two benchmarks or apply both. The final interest charged to a customer will be a mix of the chosen benchmark, a risk premium set for each borrower, and any additional fees or charges.
“About 48 percent of banks have used the CBR while another 34 percent are using both the CBR and Kesonia while the remainder are banks who have chosen to use Kesonia alone,” CBK Governor Kamau Thugge said on Wednesday. “All commercial banks have submitted their risk-based pricing formulas which they will be implementing and we expect this to be a transparent process.”
Banks began applying the new pricing approach on all new variable-rate loans from December 1, 2025, with adjustments on existing variable loans expected from February 28, 2026.
Lenders are required to publish their loan costs on their websites and on the total cost of credit platform, including their weighted average lending rate, weighted average premium (K), and all fees tied to each product.
The move by most lenders to rely on the CBR comes even after they opposed an earlier CBK proposal that sought to use the same rate as the central benchmark for the revised model. At the time, banks argued that using the CBR would mirror the return of interest rate caps and claimed it was not a market-driven benchmark.
Several major lenders, including KCB, Equity, Absa, NCBA and DTB, have already informed customers that they will use the CBR as their main reference point for loan pricing.
“By rejecting the interbank rate as a preferred unified base rate and proposing the CBR, the CBK will not operationalise the policy decision after setting the CBR,” Raimond Molenje, the chief executive officer of the Kenya Bankers Association, said earlier in a memo to the regulator.
Bank officials had previously described Kesonia as too unstable, saying it would force frequent adjustments to lending rates, each of which would need approval from the CBK and formal communication to borrowers. The bankers lobby added that using the CBR would allow members to adapt and upgrade their systems before shifting fully to the interbank benchmark.
Before these reforms, every bank used its own approved reference rate, creating confusion in the market and making it hard to track the real cost of credit. With 37 different benchmarks in use, the CBK struggled to push lenders to reduce rates whenever the official policy rate dropped.
The regulator now expects more alignment across the industry, noting that Kesonia and the CBR operate closely due to the interest rate corridor set around the CBK benchmark.
