The Central Bank of Kenya (CBK) is working on a new loan pricing model for loans and is considering submitting it to public participation, CBK Governor Dr. Kamau Thugge said on Tuesday.
- •Banks have been lobbying for an overhaul of the existing risk based pricing system, advocating instead for a common reference rate.
- •According to lenders, the current risk based pricing model is not adaptable enough to market changes since it presents different price points that create inconsistencies.
- •CBK has also piled pressure on small banks, which make up more than half the commercial banks in Kenya, to submit board plans to inject more capital within the next five years.
“I hope within the next two weeks we’ll come up with a proposal. We are looking at international best practices and how to amend them to fit our situation,” Dr. Thugge said while appearing before a parliamentary committee.
“Once we do that we’ll engage with banks, and may also have to do public participation.”
The current system, which was developed by banks and approved by the CBK, involves an assessment of individual borrower profiles. Each lender ends up with their own models and hence different rates after assessing profile elements such as credit history and repayment capacity.
The decade-old Kenya Banks’ Reference Rate (KBBR) is computed as an average of the Central Bank Rate set by the Monetary Policy Committee (MPC) and the 2-month weighted moving average of the 91-day Treasury bill rate. The premium on it is then determined by the individual customer’s profile, including the risk profile, investment risks, and the specific type of loan.
CBK has also issued an April 1st, 2025 deadline for 24 banks affected by the move to raise the minimum core capital requirements to KSh 10 billion to submit capital raising plans. Earlier this month, Ecobank Kenya built up its capital base by KSh 3.5 billion, to a total of KSh 8.5bn.
“We need strong banks,” Dr. Thugge said. “The banking sector is facing too many risks and it needs a strong capital base to address and mitigate those risks.
Dr. Thugge has also pushed back on reintroducing interest rate caps, saying it would lead to ‘rationing of credit to the private sector.”
