Kenya’s largest banks are taking divergent paths on a core central bank reform, exposing uneven implementation of the revised risk-based credit pricing framework issued by the Central Bank of Kenya.
- •CBK has not issued binding enforcement guidance mandating exclusive use of KESONIA, leaving banks room to interpret the transition.
- •Co-operative Bank is adopting the Kenya Shilling Overnight Interbank Average (KESONIA) as its loan reference rate, while Equity Bank, Diamond Trust Bank and KCB Bank will retain the Central Bank Rate for repricing existing variable-rate facilities.
- •As liquidity conditions and policy cycles evolve, the split between KESONIA-linked and CBR-linked pricing will shape both the timing and volatility of borrowing costs across Kenya’s banking system.
CBK introduced the revised Risk-Based Credit Pricing Model in August 2025, replacing bank-specific base lending rates with a transparent reference framework. The regulator identified KESONIA, published by CBK and derived from actual overnight interbank transactions, as the market-based benchmark intended to strengthen monetary policy transmission and limit discretion in loan repricing.
While KESONIA and CBR have tracked closely, their mechanics differ. CBR reflects policy intent and changes in discrete steps. KESONIA reflects prevailing interbank liquidity and adjusts automatically. For borrowers, the choice of anchor determines how quickly and how often interest-rate changes feed through to loan repayments.
For borrowers, the reform removes opaque internal base rates but introduces divergent interest-rate dynamics across lenders.
Co-operative Bank is aligning fully with the new structure. In its notice, the lender said all existing variable-rate Kenya shilling facilities would transition to pricing based on KESONIA plus a customer-specific premium, effective 28 February 2026. Lending rates will adjust automatically in line with KESONIA movements as published by CBK, directly linking borrowing costs to interbank liquidity conditions.
Equity Bank and Diamond Trust Bank have adopted a different anchor. In their notices, both lenders confirmed that existing variable-rate facilities will reprice using the Central Bank Rate plus a customer-specific risk premium, with adjustments following Monetary Policy Committee decisions rather than continuous market repricing.
KCB Bank’s earlier notice placed it firmly in the CBR camp. The lender said it adopted the revised pricing model for new Kenya shilling variable-rate facilities from 1 December 2025, using CBR as the common reference rate. For existing facilities issued on or before 30 November 2025, the model will apply to outstanding balances as at 28 February 2026, with repricing taking effect from 1 March 2026. KCB added that existing customers will not be subjected to the new fees and charges for new facilities.
CBK has not issued binding enforcement guidance mandating exclusive use of KESONIA, leaving banks room to interpret the transition. As a result, Kenya enters 2026 with a unified risk-based pricing framework but a clear divide between market-linked and policy-linked loan repricing among its largest lenders.
