NAIROBI, Kenya, July 24 – The Central Bank of Kenya (CBK) has unveiled a revised model of its Risk-Based Credit Pricing Model (RBCPM), making sweeping adjustments to how banks decide lending charges following suggestions from the monetary sector.
These embody the adoption of the Interbank Rate compounded in arrears because the benchmark for mortgage pricing, changing the sooner proposed Central Bank Rate (CBR).
The revised framework comes three months after CBK first floated the proposal on April 23, 2025.
The regulator says it acquired 45 responses from a variety of stakeholders, together with 13 industrial banks, the International Monetary Fund (IMF), the European Bank for Reconstruction and Development (EBRD), the Kenya Bankers Association (KBA), the Kenya Association of Manufacturers (KAM), and a number of other non-bank establishments, consultancy companies, and people.
“In gentle of the suggestions, CBK has made a number of amendments to the preliminary proposal to reinforce readability and alignment with market circumstances,” stated Matu Mugo, Director of Bank Supervision, in a round to financial institution executives and mortgage finance corporations.
“The function of this letter is to ahead the connected revised consultative paper on your evaluation and remark.”
CBK says the brand new mannequin that makes use of the interbank charge because the widespread reference charge is geared toward aligning Kenya’s lending framework with international monetary greatest practices such because the SOFR within the United States and SONIA within the United Kingdom.
The closing lending charge will now be calculated because the interbank charge plus a premium (“Ok”) and extra charges.
The premium will think about a financial institution’s operational prices, anticipated return to shareholders, and the borrower’s danger profile primarily based on an in depth credit-scoring system.
These prices might be disclosed to prospects and the general public through the Total Cost of Credit (TCC) web site and to CBK.
CBK revised its preliminary mannequin after stakeholders raised a number of considerations.
Banks argued that the CBR didn’t precisely mirror the price of funds, that are largely influenced by deposit charges and long-term borrowings.
The regulator says it equally acquired robust opposition to publishing commercially delicate value breakdowns and to the proposed three-month transition interval, which was deemed too quick for implementation.
CBK has now allowed a six-month transition timeline.
Banks can have three months to develop and approve their risk-based pricing fashions on the board degree and one other three months to totally implement them.
Additionally, the revised mannequin won’t apply to particular mortgage sorts comparable to overseas currency-denominated loans, digital lending merchandise, Islamic banking services, bank card loans, and workers loans on account of their distinctive constructions.
The CBK has additionally pledged to revamp the Total Cost of Credit web site, which was initially launched in 2017 to advertise transparency in lending.
The regulator notes that whereas the positioning has elevated entry to data, customers have reported difficulties navigating it, particularly on cell units.
The revamp goals to enhance consumer expertise and incorporate the evolving wants led to by the revised pricing mannequin.
