Co-operative Bank has announced a change to how interest rates for existing variable-rate Kenya Shilling loans will be determined, following regulatory guidance from the Central Bank of Kenya (CBK).
In a notice on January 29, the bank said the transition follows a CBK advisory issued in August 2025, which directed banks to implement a revised Risk-Based Credit Pricing Model anchored on the Kenya Shilling Overnight Interbank Average Rate (KESONIA).
“Co-op Bank implemented its revised Risk-based credit pricing model with KESONIA as the reference rate for all new variable rate Kenya Shilling-denominated credit facilities from 1st December 2025,” read the notice in part.
The new framework replaces earlier reference benchmarks and standardises the pricing of variable-rate loans across the banking sector.
Co-operative Bank confirmed that it had already implemented the revised pricing model for all new variable-rate Kenya Shilling-denominated credit facilities from December 1, 2025. The latest notice now extends the model’s application to existing facilities.
“We shall transition all existing variable rate Kenya Shilling-denominated credit facilities to its Risk-based Credit Pricing Model with KESONIA as the reference rate effective 28th February 2026.”
Co-operative Bank Transition to KESONIA-Based Pricing
Under the revised framework, KESONIA, as published by the CBK on its official website, will serve as the lending reference rate for all variable-rate Kenya Shilling loans.
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The effective lending rate for each facility will be calculated using a combination of the reference rate and a customer-specific risk premium.
“The effective lending rates for all variable rate Kenya Shilling-denominated facilities will be based on KESONIA + Customer-specific Premium (K).”
The bank explained that the risk premium will vary depending on individual customer profiles, consistent with the principles of risk-based lending.
Additionally, they confirmed that the approach was intended to ensure that loan pricing reflects the assessed risk of each borrower while remaining aligned with regulatory standards.
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Automatic Adjustment Mechanism
Co-operative Bank also clarified how changes in the reference rate will be applied going forward. Any movements in KESONIA, whether upward or downward, will take effect automatically in line with CBK publications.
“The changes in KESONIA shall apply automatically as published by CBK from month to month.”
This means borrowers with variable-rate facilities will see their interest rates adjust based on monthly changes in the benchmark rate, without the need to renegotiate loan terms.
Customers seeking clarification on how the new pricing model affects their existing loans have been advised to contact the bank or liaise with their Relationship Manager, Personal Banker, Business Banker, or Branch Manager at any of our branches countrywide.
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