CBK signals on-site inspection of banks' credit pricing model from March 2027

Kenya’s banking sector is expected to disburse more than Ksh.400 billion to Small and Medium-sized Enterprises (SMEs) by the end of 2026, even as lenders continue to grapple with elevated non-performing loans and the impact of the new risk-based credit pricing framework.

According to the Kenya Bankers Association (KBA), the push to increase lending to SMEs comes as the cost of credit continues to ease following a monetary policy easing cycle by the Central Bank of Kenya (CBK).

The latest data from the CBK shows that credit to the private sector remained strong at 10.2 per cent in July 2026, a slight slowdown from the 10.6 per cent recorded in June 2026, but a complete reversal of credit growth from the -2.9 per cent recorded in January 2025.

It is this turnaround that the financial sector now claims has been created by the uniformity brought about by the Kenya Shilling Overnight Interbank Average, popularly known as (KESONIA).

Kenya Bankers Association CEO Raimond Molenje says: “I can say progressively much of this has been as a result of this development on the stability of how banks can be able to price and that has also given banks the confidence that, Yes, long term we can be able to project and then again the other benefit of KESONIA is banks are now required to price customers at an individual level.”

Yusuf Omari, Interim CEO, Absa Bank, added: “Different banks had different benchmark rates for lending, now that uniformity has come in, so transparency and comparability of the financials comes in and also more important, which the monetary policy has kept on insisting, that we can be able to see a quick impact of whatever decision is being made by MPC.”

To ensure that the full benefits of risk-based pricing model trickle down to customers, banks will have until March next year to reprice credit for customers, with the Central Bank set to begin inspections on the same.

“Central Bank has been able to signal banks that after one year plus, Central Bank will be coming to banks to be able to do supervision and inspection as to how are you pricing customer A and customer Y and can you demonstrate their risk profile,” stated Molenje.

But despite the convergence between KESONIA and the Central Bank rate, the delta between those rates and the average lending rate remains significant, with Kenya Bankers Association blaming this difference on customer risk, with non-performing loans remaining in double digits.

CBK Governor Kamau Thugge says: “As of the latest information, KESONIA was at 8.754 and that, in contrast to the CBR, the growth of money supply remains strong in June and July and this reflected credit to the private sector.”

“Kenyans are still having difficulties in repaying. That’s why the NPLs, for a properly working economy to be extremely vibrant, nonperforming loans need to be in single digits,” said Molenje.