Since August 2024, the Central Bank of Kenya (CBK) has progressively cut the Central Bank Rate (CBR) severally and rolled out a new Risk-Based Credit Pricing Model (RBCPM) as they seek to bring a cheaper and more effective lending model for Kenyans.
The decision was however met with resistance from most banks initially, citing high‑cost deposits locked at prior rates and risk concerns.
However, CBK warned lenders to act in the same way they did when rates rose or face the consequences.
The first cut in August 2024 pushed the rates marginally, from 17.22% in November to 16.89% in December, which CBK described as an inadequate transmission.
On February 5, 2025, CBK cut the CBR to 10.75%, along with tougher regulations for banks and on-site inspections to enforce the RBCPM.
CBK highlighted legal powers to levy daily fines and multi‑million-shilling penalties for non‑compliance, instructing Equity, KCB, Co‑op, NCBA, I&M and others to announce sizeable reductions within days.
CBK lowered CBR further to 10.00% on Apr 8, 2025, and warned of penalties for delays.
The latest Central Bank Rate (CBR) set by the Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) is 9.25%, following a 25 basis point cut at the MPC meeting held on October 7, 2025.
Banks that Revised Their Rates
Following CBK’s directive, major lenders have issued public notices confirming their migration to the RBCPM.
KCB Bank
KCB Bank has announced that starting December 1, 2025, all new local currency variable-rate loans will be priced under the RBCPM.
In a public notice, KCB stated that lending rates will be calculated using the Central Bank Rate (CBR) plus a customer-specific risk-based premium (K).
Current variable-rate loans will continue under existing terms but must transition to the new framework by February 28, 2026, as mandated by CBK.
The institution added that all applicable fees, charges, and the total cost of credit will be fully disclosed to customers in compliance with CBK requirements.
KCB stressed on responsible lending and support for customers during the transition period.
Absa Bank Kenya
Absa Bank has confirmed that starting December 1, 2025, all new local-currency variable-rate loans within the bank will be priced under RBCPM.
The rates will comprise the Central Bank Rate (CBR) plus a customer-specific premium (K) determined by the borrower’s risk profile.
According to Absa, loans issued before December 1, 2025, will continue under current terms but must transition to the revised model by February 28, 2026, as per CBK guidelines.
Absa has pledged full disclosure of all applicable fees, charges, and the total cost of credit to customers, in order to comply with CBK’s transparency requirements.
Diamond Trust Bank (DTB)
DTB has confirmed its compliance with CBK’s directive and stated that from December 1, 2025, all new local currency variable-rate loans will be priced under RBCPM.
Rates will comprise the Central Bank Rate (CBR) plus a customer-specific premium (K).
According to DTB, current variable-rate loans will remain under existing terms but must transition to the revised model by February 28, 2026.
DTB pledged full disclosure of all applicable fees, charges, and the total cost of credit to customers to ensure compliance with CBK’s transparency requirements.
Why RBCPM Matters
Under RBCPM, lending rates for new variable-rate loans are calculated as:
CBR (Central Bank Rate) + Customer-Specific Risk Premium (K)
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This means borrowers with strong credit profiles pay less, while higher-risk customers pay more, creating fairness and transparency.
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Under the new RBCPM, low-risk borrowers are encouraged to responsibly borrow and are rewarded for good credit behavior.
The lower RBCPM rates have also improved access to financing for small businesses, driving growth and job creation.
The risk-sensitive pricing also reduces defaults and is set to strengthen the banking system.
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