Kenya’s central bank penalised 33 commercial banks in 2025 for failing to comply with rules governing risk-based loan pricing, while two other lenders faced administrative action, as the regulator pushed banks to pass monetary policy changes through to borrowers.
The Central Bank of Kenya (CBK) conducted targeted inspections during 2025 to assess implementation of its Risk-Based Credit Pricing Model (RBCPM), which was introduced in 2019 to require lenders to price loans according to individual borrowers’ risk profiles.
Only three banks were found to be fully compliant with the framework as of Dec. 31, 2025, the CBK said in its 2025 Bank Supervision Annual Report.
The penalties come as Kenya’s benchmark interest rate has fallen sharply over the past year.
The CBK’s Central Bank Rate (CBR) stood at 9.25% in September 2025, before being cut to 9.0% in December and 8.75% in February 2026. The Monetary Policy Committee has since kept the rate at 8.75%, most recently in August.
That represents a 50-basis-point reduction in the CBR over the past year, after the central bank had cut rates by a much larger 300 basis points from 12% in October 2024 to 9% by December 2025.
The current CBR is 8.75%, while the CBK’s latest data shows the average commercial bank lending rate at 14.39% in July 2026. The average deposit rate was 6.93% and the savings rate 3.53%.
The gap between the policy rate and the average lending rate highlights the challenge facing the regulator as it seeks to ensure that reductions in monetary policy rates translate into cheaper credit.
The CBK said in its 2025 banking sector report that changes in its policy-rate decisions had not been “uniformly or effectively reflected in lending rates” following the repeal of previous interest-rate controls.
The regulator subsequently introduced a new loan-pricing framework in September 2025 based primarily on Kenya’s Risk-Free Rate, known as the Kenya Shilling Overnight Interbank Average Rate, or KESONIA, plus a bank-specific premium.
Where KESONIA is not practical, banks can use the CBR as the alternative reference rate. Existing loans were given a six-month transition period that ended on Feb. 28, 2026.
The RBCPM was designed to move lenders away from uniform loan pricing and allow borrowers with stronger credit profiles to receive lower borrowing costs.
The regulator’s latest report indicates that implementation remains uneven despite years of regulatory guidance.
The CBK has also been lowering its policy rate as inflation pressures eased and economic conditions allowed monetary policy to become less restrictive. The CBR stood at 13% in the first half of 2024 before the easing cycle began, falling to 12.75% in August 2024, 12% in October and 11.25% in December. It was then reduced to 10.75% in February 2025, 10% in April, 9.75% in June, 9.5% in August, 9.25% in October and 9% in December.
In February 2026, the CBK cut the rate again to 8.75%, where it has remained through its April, June and August meetings.
The CBK said in August that average bank lending rates had continued to decline and private-sector credit growth was improving. It retained the CBR at 8.75% to keep inflation expectations anchored and support exchange-rate stability.
The regulator’s enforcement action comes against that backdrop, with banks expected to incorporate changes in the monetary-policy environment into their loan pricing.
The report did not identify the 33 banks that were penalised.
KCB Bank Kenya led the industry in gross lending in 2025 after its loan book exceeded 1 trillion Kenyan shillings, equivalent to about $7.7 billion at the CBK’s Sept. 23 exchange rate of 129.45 shillings per dollar. KCB accounted for nearly a quarter of the sector’s gross loans, according to the report.
Trade, real estate, manufacturing and personal and household borrowing accounted for a significant share of non-performing loans, the CBK said.
Despite the credit risks, Kenya’s banking sector remained well capitalised, liquid and profitable during 2025, according to the regulator.
The penalties indicate the difficulty of translating monetary policy into borrowing costs for consumers and businesses.
While the CBR has fallen by more than four percentage points since the easing cycle began in August 2024, the average lending rate remained at 14.39% in July 2026, underscoring the difference between the central bank’s policy rate and the rates ultimately charged by commercial lenders.
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Mohd Hassan has extensive experience in news gathering, editing, and writing for the newswire industry, Contact – Info@impactnews-wire.com
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