CBK reviews Risk-Based Credit Pricing

The Central Bank of Kenya (CBK) has announced a bold initiative to refine the country’s lending practices with the issuance of a consultative paper on the review of the Risk-Based Credit Pricing Model for public comments.

The Risk-Based Credit Pricing Model (RBCPM), introduced in 2019, was a collaborative strategic initiative by the CBK and the banking sector.

CBK said that the initiative was within the broader reform agenda to address persistent challenges in the credit market, including high lending rates and opaque pricing mechanisms, by creating a market-driven framework for pricing credit risk.

“With the lapse of five years, a reassessment of RBCPM was deemed necessary to determine if it still effectively complements the ongoing reforms in the banking sector,” read part of the statement.

CBK proposes the use of the policy rate (Central Bank Rate) as the common reference rate for determining lending rates in the Kenyan banking sector.

The Central Bank Rate (CBR), as the common reference rate, reflects the cost of funding to the banks.

Further, CBK said the lending rates will be determined by adding a premium (“K”) to the CBR.

“CBK will publish the components of each bank’s lending rate premium (“K”) on its website, the Total Cost of Credit (TCC) website, and in two newspapers of nationwide circulation,” CBK said in a statement.

Meanwhile, CBK requests all interested stakeholders to share their comments on the paper that can be downloaded from https://www.centralbank.go.ke/2025/04/22/cbks-consultative-paper-on-risk-based-credit-pricing-model/.

CBK noted that the due date for submitting comments or feedback will be on or before May 2,2025.

“Share your comments via e-mail to fin@centralbank.go.ke with the subject: Comments- Consultative Paper  on the Review of the Risk-Based Credit Pricing  Model ,” CBK said.