Seven Banks to Implement Risk-Based Credit Pricing Model Starting Monday

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Seven major banks in Kenya are set to adopt the revised Risk-Based Credit Pricing Model (RBCPM) starting Monday, 1 December 2025.

The banks, which include Equity Bank, Standard Chartered Kenya, Co-op Bank, DTB Bank, KCB Bank, Absa Bank, and Kingdom Bank will apply the new framework to all new Kenya Shilling-denominated variable-rate loans. Existing variable-rate loans will transition to the model by 28 February 2026.

The move follows a directive by the Central Bank of Kenya (CBK) issued in a circular dated 25 August 2025.

Kenya’s risk-based credit pricing model requires commercial banks to price loans based on individual borrower risk profiles, with a common reference rate plus a customer-specific premium, called “K.”

Under the new model, the total lending rate for a borrower will consist of three components:

Base Rate (Reference Rate): Either the Central Bank Rate (CBR) or the Kenya Shilling Overnight Interbank Average (KESONIA), as published by CBK.
Premium (“K”): A margin unique to each borrower that accounts for the customer’s credit risk, the bank’s operating costs, and shareholders’ expected returns.
Additional Charges: Clearly disclosed fees such as loan origination, arrangement, commitment, default, or late payment fees.

The banks will determine the risk premium for each borrower using internal models approved by the Central Bank of Kenya (CBK). These models assess the borrower’s creditworthiness and overall risk profile.

Key factors will include the borrower’s repayment history and credit record as reported by Credit Reference Bureaus, the type and term of the loan, the valuation and status of any collateral, and the borrower’s overall financial profile, such as the number of accounts held, payment behavior, and total outstanding debt.

Banks will also take into account their own operating costs, efficiency levels, and the cost of deposits when setting the premium.

To ensure transparency, the CBK and Kenya Bankers Association (KBA) will jointly manage the Total Cost of Credit (TCC) website.

Banks will be required to publish weighted average lending rates, risk premiums, and all applicable fees for each loan product on this platform. This approach allows borrowers to clearly see how their interest rates are calculated, enabling easier comparison of loan offers across different institutions.

Borrowers with strong credit histories and low-risk profiles are likely to secure loans at lower interest rates, potentially below previous flat-rate levels. In contrast, those considered high-risk, due to irregular income or past defaults, may face higher rates reflecting the greater lending risk.

The model is expected to increase credit availability for a broader range of customers, including small and medium-sized enterprises (SMEs) and individuals in the informal sector who were previously excluded under uniform lending approaches.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.