KENYA Trends and Developments Contributed by: Walid Khan, Africa Law Partners
the Kenyan banking sector. The moratorium has since been lifted due to the new capital requirements for banks, increased M&A of banks and strengthening of banks’ positions, and the entry of strategic foreign investors. Following the lifting of the moratorium, new entrants to the Kenyan banking sector will be required to demonstrate that they can meet the enhanced mini- mum capital requirements of KES10 billion. The CBK anticipates that these developments will result in stronger and more resilient banks which will be able to navigate the growing risks in the global, regional and domestic arenas. Stronger banks will also be able to support large-scale financing needs to meet Kenya’s develop- ment aspirations. New Risk-Based Credit Pricing Model The CBK has, effective 1 September 2025, revised the pricing model for banks to a new Risk-Based Credit Pricing Model (RBCPM) anchored on the overnight interbank average rate, now renamed the Kenya Shil- ling Overnight Interbank Average (KESONIA). The objective of the new rate is to: • align it with international best practices; • strengthen monetary policy transmission; • enhance transparency in lending; and • promote responsible lending by aligning credit pricing with the borrowers’ risk profiles. Under the revised RBCPM, the total lending rate is KESONIA + Premium (K), where the premium includes the costs related to lending, return to shareholders,
and the risk profile of the borrower. The total cost of credit is thus KESONIA + K + Fees and Charges (Fees and Charges include origination, processing, negotiation and commitment fees). KESONIA stands for the Kenya Shilling Overnight Interbank Average. It is a transaction-based benchmark rate reflecting the average interest rate at which banks in Kenya lend and borrow unsecured overnight funds in Kenyan Shil- lings. The revised RBCPM takes effect from 1 Sep- tember 2025, for all new variable rate loans. As for existing variable rate loans, the revised RBCPM will take effect from 28 February 2026, at the end of a six-month transition period for finalisation of the nec- essary arrangements. It is anticipated that the new pricing model will increase loan pricing transparency and competitiveness by requiring banks to publish their rates and justifying the “K” premium component based on a borrower’s specific risk. Whereas the new pricing model marks a significant shift towards a more transparent, com- petitive and risk-based approach to lending, it also requires players in the banking industry to make oper- ational adjustments, ensure compliance, and educate customers on the new framework. Conclusion Kenya’s banking sector is in a phase of regulatory tightening and capital strengthening. While challenges exist, particularly around registration requirements for international lenders, credit access and compliance, the environment also presents opportunities for well- capitalised, forward-looking businesses and inves- tors.
289 CHAMBERS.COM
Powered by FlippingBook