Kenyan borrowers are now questioning how banks determine loan interest rates after the Central Bank of Kenya (CBK) imposed penalties on 33 commercial banks due to significant violations of banking regulations.
The CBK noted that most issues identified during their inspections were related to the implementation of the Risk-Based Credit Pricing Model (RBCPM), which banks use to set credit prices.
As of December 31, 2025, 35 out of the 38 commercial banks in the country were found to be in violation of the Banking Act or CBK Prudential Guidelines, a sharp increase from just 11 banks the previous year.
In its 2025 Bank Supervision Annual Report, CBK highlighted, “Thirty-five commercial banks were in violation of the Banking Act and CBK Prudential Guidelines as at December 31, 2025, compared to eleven commercial banks as at December 31, 2024.”
Following targeted inspections, 33 banks faced financial penalties, while two others encountered administrative actions.
This scrutiny brings attention to borrowing costs and what customers need to know about the interest rates on their loans.
The CBK’s inspections revealed that loan pricing was a major concern, with many violations tied to non-compliance with RBCPM, breaches of the single obligor limit, and failure to meet the minimum absolute capital requirement of Ksh. 3 billion by December 2025.
Ten banks exceeded the single obligor limit, which restricts lending to 25% of a bank’s core capital, while seven banks did not maintain the statutory minimum core capital requirement.
Additionally, the regulator identified breaches in capital and corporate governance, including five banks that failed to meet the required Total Capital to Risk-Weighted Assets ratio of 14.5% and four that did not meet the Core Capital to Risk-Weighted Assets ratio of 10.5%. Three banks also allowed individual shareholdings to exceed the 25% limit.
CBK has taken corrective measures against the affected institutions, stating, “Appropriate remedial actions were taken on the institutions concerned by the CBK in respect of the violations.”
The RBCPM findings are particularly important for borrowers, as this framework dictates how banks set the prices for variable-rate credit.
The Risk-Based Credit Pricing Model aims to enhance transparency in lending by linking credit prices to the bank’s costs and the risk associated with each borrower.
Under the revised framework, a variable lending rate is determined by a reference rate, primarily KESONIA, along with a bank-specific premium known as “K.”
KESONIA, the Kenya Shilling Overnight Interbank Average, serves as a benchmark published by the CBK. The Central Bank Rate can also be used as an alternative reference rate when necessary.
The bank-specific premium reflects factors such as lending costs, expected shareholder returns, and the borrower’s risk profile.
CBK emphasized that the revised model seeks to clarify credit pricing and align it more closely with individual borrowers’ risk profiles.
This revised model applies to new variable-rate loans starting September 1, 2025, with existing loans needing to transition to this framework by February 28, 2026. The full implementation occurred in March 2026.
Additionally, banks must publish information on their weighted average lending rates, premiums, and applicable fees for lending products.
For borrowers, this means understanding that the interest rate on a variable-rate loan is part of a broader pricing structure rather than a figure set arbitrarily.
It’s important to note that CBK’s findings do not imply that every customer of the penalized banks was overcharged. While the regulator identified breaches related to the risk-based pricing framework, it does not confirm that every affected borrower was charged an incorrect interest rate, nor does it guarantee refunds for all customers.
Borrowers should not assume that their bank’s inclusion among the penalized institutions means their loan was mispriced. Instead, those with variable-rate loans can ask their banks for clarification on how their interest rate was calculated, including the reference rate, the bank-specific premium, and any additional fees.
They can also compare their repayment amounts with changes in the applicable reference rate and the terms of their loan agreement.
This distinction is crucial because two borrowers at the same bank may not receive identical interest rates, as the revised pricing framework accounts for differences in borrower risk and other factors.
The latest CBK data underscores the importance of the benchmark. As of September 22, 2026, KESONIA was at 8.7519%, while the average commercial bank lending rate was 14.39% in July 2026.
The gap between the benchmark rate and an individual customer’s lending rate can reflect the bank-specific premium and other costs, but it does not inherently indicate incorrect charges.
The broader implication of CBK’s actions is a heightened regulatory scrutiny of how banks price and disclose credit.
For borrowers, the key is to clearly understand their interest rates and ensure their bank complies with CBK requirements in applying the pricing framework.
The penalties imposed on 33 banks raise an important question for the banking industry: will stronger enforcement of risk-based pricing lead to more transparent loan pricing and clearer information for customers?
For now, borrowers with variable-rate loans should carefully review their loan statements and agreements, grasp the benchmark and premium applied, and seek clarification from their bank when needed.
