NAIROBI, Aug. 27 (Xinhua) -- The Central Bank of Kenya (CBK) has introduced a revised risk-based credit pricing model (RBCPM) that will peg lending rates to a new interbank benchmark in a bid to enhance transparency in the banking sector.
In a statement issued Tuesday evening in Nairobi, the capital of Kenya, the CBK said the revised RBCPM aims to strengthen monetary policy transmission, improve transparency in lending, and promote responsible credit pricing by aligning loan costs with borrowers' risk profiles.
From Sept. 1, interest on new loans will be tied to the Kenya Shilling Overnight Interbank Average (KESONIA), a renamed version of the overnight interbank rate that reflects actual transactions between banks. Existing loans will transition to the new system by the end of February 2026 after a six-month migration period.
"The name change aligns with international benchmark reform practices and provides a clearer identity for Kenya's risk-free reference rate, consistent with global standards such as the Sterling Overnight Index Average of the United Kingdom, and the Secured Overnight Financing Rate of the United States," the CBK said.
The regulator said the move followed consultations with stakeholders, including banks, development partners, industry associations, non-bank financial institutions, academia, and corporates.
The CBK noted that KESONIA closely tracks the Central Bank Rate (CBR) under the current monetary policy framework. Commercial banks will now be required to publish average lending rates and fees for each product on their websites and on the CBK's Total Cost of Credit portal.
KESONIA will apply to all variable-rate loans except foreign currency-denominated and fixed-rate loans. Where its application is impractical, banks may use the CBR as an alternative benchmark.
The CBK emphasized that KESONIA represents only a renaming of the overnight interbank average rate, with no methodological changes. ■
