Kenya’s Biggest Banks Have Rejected CBK’s New Lending Benchmark

Kenya’s commercial banks have opted not to adopt the Central Bank of Kenya’s new risk-based lending framework anchored on the Kenya Shilling Overnight Interbank Average (Kesonia), instead retaining the Central Bank Rate (CBR) as their primary pricing benchmark, a decision that highlights the friction between regulatory ambition and the operational realities of loan pricing in a highly fragmented banking sector. The split, which includes most of the country’s largest and most systemically important lenders, points to a broader pattern in which institutions prioritise stability, system compatibility and speed of execution over a coordinated shift to a new market-based reference rate

Over 70% of Kenya’s commercial banks have pushed back on a new risk-based lending framework designed to standardise loan pricing, underscoring resistance within the sector to a shift toward a more centralised benchmark system.

An analysis of lending benchmarks shows that 27 of 37 banks, including a broad mix of mid-tier and smaller lenders that have yet to disclose their pricing methodologies, have retained the Central Bank Rate (CBR) as their primary reference point rather than adopting the Kenya Shilling Overnight Interbank Average (Kesonia), which regulators had positioned as the anchor for variable loan pricing.

The list of institutions that have effectively resisted the shift includes most of the country’s systemically important lenders. Equity Bank, KCB Group, Absa Bank Kenya, Standard Chartered, NCBA and DTB have all retained the CBR as their pricing anchor, signalling a coordinated preference among large banks to stick with a familiar and operationally simpler benchmark. This clustering at the top of the market suggests that even well-capitalised institutions are prioritising execution certainty over regulatory alignment.

The final revised pricing model was built around Kesonia, a market-based overnight interbank rate meant to improve transparency and strengthen monetary policy transmission. Banks were, however, allowed to use the CBR as a fallback benchmark during the transition.

“It was an issue of the timelines that were provided. It was easier to adopt the CBR from the get-go. The timelines were quite tight and the Kesonia system recalibration would have taken time,” Dr Samuel Tiriongo, head of research at the Kenya Bankers Association, told the Business Daily newspaper in Nairobi.

By contrast, Co-operative Bank of Kenya has adopted Kesonia, alongside Habib Bank AG Zurich and ABC Bank. Citibank N.A. Kenya and Stanbic Bank Kenya have taken a hybrid approach, using both CBR and Kesonia, reflecting a cautious hedge between regulatory direction and internal pricing stability.

Five lenders, Access Bank Kenya, Development Bank of Kenya, Kingdom Bank, Premier Bank and SBM Bank Kenya, did not disclose their benchmark rates, adding a layer of opacity that complicates full market comparison and suggesting uneven readiness across the sector.

The shift marks an attempt by regulators to move away from a fragmented system in which banks used about 37 different internal benchmarks, a structure the Central Bank of Kenya (CBK) said made it difficult to track lending costs and enforce monetary policy decisions.

Under the new framework, total lending rates are built from a market interbank rate plus a bank-specific premium, known as K, which reflects operating costs, expected returns and borrower risk.

The interbank rate is constrained within a corridor of 0.75 percentage points above or below the CBR, which currently stands at 8.75 per cent. This effectively limits movement to between 8.0 per cent and 9.5 per cent.

Kesonia operates within the same corridor, meaning in theory the two benchmarks should not diverge significantly over time.

The CBK has said it is not seeking to control lending rates directly but to ensure they move more closely in line with the policy rate, improving transmission of monetary policy into the real economy.

Commercial banks began applying the new pricing model to fresh variable-rate loans on December 1 2025, with adjustments to existing loans taking place between December 2025 and February 2026.

Despite the regulatory push, banks argue that the transition has been operationally challenging. Dr Tiriongo said the industry still expects a gradual shift towards Kesonia as systems are upgraded.

“We still desire to transition to Kesonia and we continue to have discussions among ourselves and even with the CBK,” he added.

The debate comes as the CBK holds its benchmark rate at 8.75 per cent following a prolonged easing cycle that saw 10 consecutive cuts before April’s pause, as policymakers assess inflation risks linked to rising global energy prices.

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