Kenyan Borrowers May Not See Lower Loan Rates Despite CBK Rate Cuts
Even as CBK cuts benchmark rates, Kenyan bank loans may remain costly due to risk-based pricing and banks’ funding costs.
By John Mtongoi Newsroom
August 21, 2026
2 min read
Kenyan borrowers are unlikely to benefit immediately from reduced loan interest rates despite recent cuts by the Central Bank of Kenya (CBK) to its benchmark rate. This is because the CBK rate forms just one part of the final interest rate banks charge.
Banks also factor in their funding costs, prevailing market conditions, and crucially, the individual risk profile of each borrower when setting loan rates. This approach, known as risk-based pricing, means that two borrowers seeking similar loans could be offered different rates depending on their creditworthiness.
Risk-Based Pricing and KESONIA Benchmark
The Kenya Shilling Overnight Interbank Average (KESONIA) has been introduced as a uniform benchmark to guide banks in pricing loans, replacing the varied internal benchmarks previously used. According to Kenya Bankers Association CEO Raimond Molenje, this has improved pricing stability and transparency across lenders.
Absa Bank’s interim CEO, Yusuf Omari, noted that the common benchmark enhances comparability of loan rates, although borrowers should not expect automatic rate reductions when KESONIA or the CBK rate falls.
Credit Growth and Non-Performing Loans
Private sector credit has rebounded, growing by 10.2% in July 2026, a significant recovery from a contraction in early 2025. This momentum supports banks’ goal to extend over Ksh400 billion in loans to small and medium-sized enterprises (SMEs) by the end of 2026.
However, elevated non-performing loans (NPLs) remain a challenge. Molenje emphasized the need to bring NPLs down to single-digit levels to foster a more vibrant economy. High NPLs force banks to maintain risk premiums in their pricing to cover potential defaults.
Looking Ahead for Borrowers
Banks have until March 2027 to fully implement risk-based pricing and will undergo CBK inspections to verify that loan rates fairly reflect individual borrower risks. Borrowers should understand that while benchmark rate cuts create potential for cheaper loans, the final cost depends on how banks incorporate risk and funding costs into their pricing.
The new framework aims to enhance transparency and comparability in loan pricing, but the true test will be whether it leads to significantly lower borrowing costs for Kenyan households and businesses over time.
