KESONIA Is Here: How CBK’s New Loan Pricing Model Will Change Borrowing in Kenya
Read Time:2 Minute, 46 Second
The Central Bank of Kenya (CBK) will overhaul Kenya’s lending framework from December 1, 2025, replacing bank-specific base rates with a single reference rate, the Kenya Shilling Overnight Interbank Average (KESONIA).
The shift to the CBK New Loan Pricing Model is expected to improve transparency, strengthen monetary policy transmission, and create fairer pricing for borrowers.
Why the CBK Is Introducing KESONIA
Kenyan banks have historically used their own base rates to price loans. These rates often varied widely and lacked transparency, making it difficult for the CBK to ensure that changes in the Central Bank Rate (CBR) were transmitted into lending rates.
At times, when the CBK lowered the CBR to stimulate borrowing, some lenders delayed adjusting their loan rates, undermining policy effectiveness.
The introduction of KESONIA is intended to address these challenges. The benchmark will be calculated daily from overnight interbank lending transactions and will move within a ±75 basis points band of the CBR. With the CBR currently at 9.5 percent, KESONIA will range between 8.75 percent and 10.25 percent.
This tight linkage ensures that monetary policy shifts are reflected in lending rates more quickly and consistently.
Recent CBK inspections showed that some banks were not following agreed pricing models. A unified, auditable benchmark such as KESONIA is designed to close these gaps.
Structure of the KESONIA Loan Pricing Model
Under the KESONIA Loan Pricing Model, all new loans, except for foreign-currency and fixed-rate facilities, will be priced as KESONIA plus a borrower-specific premium (K). The premium incorporates:
- Bank Operating Costs – including staff expenses, technology, and branch networks.
- Expected Shareholder Return – ensuring profitability for investors.
- Borrower Risk Profile – accounting for creditworthiness, income stability, and loan purpose.
This structure anchors loan pricing to a transparent, market-driven benchmark while allowing room for risk and operational cost variations across banks.
Foreign-currency loans and fixed-rate loans remain exempt, as their pricing is typically tied to global benchmarks such as LIBOR or SOFR, or negotiated under long-term contracts.
Enforcement and Penalties for Non-Compliance with the KESONIA
The CBK will adopt a strict enforcement regime to ensure banks comply with the new framework. Key measures include:
1. Daily KESONIA Publication: From December 1, 2025, the CBK will publish KESONIA daily at 9 a.m., creating a clear reference for both banks and borrowers.
2. Submission of Pricing Models: Banks will be required to submit their board-approved pricing models within 15 days of the policy’s rollout. These must detail how the borrower-specific premium (K) is calculated and aligned to the CBK New Loan Pricing Model.
3. Penalties for Non-Compliance with the KESONIA: Lenders that breach the framework face punitive sanctions, including:
- A fine of Sh20 million or three times the financial benefit gained, whichever is higher.
- Daily penalties of up to Sh100,000 per case, potentially applied per loan account.
- Personal fines of up to Sh1 million for senior executives responsible for compliance failures.
The adoption of KESONIA is expected to eliminate wide disparities in base lending rates between banks. Borrowers will have greater clarity on how interest rates are determined, while the CBK will gain stronger oversight of lending practices.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.
Happy
0 %
Sad
0 %
Excited
0 %
Sleepy
0 %
Angry
0 %
Surprise
0 %
0
0
Average Rating