KCB leads rollout of new loan pricing

KCB Group says it will start using a new loan pricing system as required by the Central Bank on December 1. This will make the bank one of the first major lenders to adopt the new rules, which are meant to make loan costs change more responsive to monetary policy changes.

The move by the tier one lender which is Kenya's largest bank by assets comes as pressure mounts on the country’s 38 commercial banks to comply with the Central Bank of Kenya's (CBK) December deadline for the revised Risk-Based Credit Pricing Model (RBCPM), aimed at increasing loan pricing transparency in a sector long criticised for slow transmission of rate cuts to borrowers.

In a notice, KCB Bank Kenya Ltd informed its customers that it would transition to the new framework starting December 1, 2025, making it one of the earliest adopters among major lenders.

"All new local currency variable-rate loans taken from December 1, 2025 will be subjected to the new pricing model," KCB said in the notice, further outlining that the lending rates would now be based on the Central Bank Rate (CBR) plus a customer-specific risk premium.

KCB's early first mover action puts pressure on competitors in the market where borrowers have long complained about the ambiguity of lending rates with a few days to the regulatory deadline. 

The move turns the spotlight on other lenders to follow suit ahead of the regulatory deadline aimed at making borrowing costs more responsive to policy changes. 

CBK Governor Kamau Thugge's recently expressed frustration that only one unnamed bank had sought regulatory approval for the new model, despite the looming deadline. 

Thugge criticised lenders for being quick to raise borrowing costs when the CBK hikes rates but slow to lower them during easing cycles. 

The slow adoption has been a point of tension between the regulator and the powerful banking sector. Despite the CBK cutting its benchmark rate by 25 basis points to 9.25 per cent earlier this month - its eighth reduction in a cycle that began last year - average commercial bank lending rates remained elevated at 15.1 per cent as of September.

Under the new framework, existing variable-rate loans will transition by February 28, 2026, according to KCB's notice. The bank committed to fully disclosing all applicable fees and the total cost of credit in line with CBK requirements.

The looming deadlines comes ahead of the final Monetary Policy Committee (MPC) meeting of the year scheduled for December 9, where the Thugge-led team of monetary policymakers will evaluate the effectiveness of their policies amid the ongoing transition.

Other tier one banks, including NCBA Group, have indicated that they are adjusting systems to comply with the new regime.

“The Bank is currently adjusting its systems, policies and loan documentation to align with the CBK’s new guidelines,” NCBA earlier said in the note to customers.

“Any changes to your existing loan terms or pricing will be communicated to you in advance and in compliance with the CBK requirements.”

CBK had given all the banks three months to have the new pricing models approved for new loans and until March 2026 to migrate all existing variable-rate loans.