The Central Bank of Kenya (CBK) has rejected requests to exempt bank staff loans from its new loan pricing system, insisting that all borrowers must operate under the same rules. The financial regulator, in a notice issued on August 26, 2025, explained that only fixed-rate loans and loans offered in foreign currency will not be affected by the new formula. All other forms of borrowing, including personal loans, car loans, mortgages, and credit card facilities, must now be aligned with the new structure.
The Central Bank clarified that the new arrangement is part of its Risk-Based Credit Pricing Model, also known as RBCPM. Under this model, lending costs will be based on a benchmark called KESONIA, which is the Kenya Shilling Overnight Interbank Average rate. To this benchmark, banks are expected to add a premium that covers risk, operational costs, and their profit margin. The aim, according to CBK, is to create a more transparent loan pricing system that reflects the real cost of credit in Kenya’s banking sector.
For many years, banks in Kenya have given their staff and directors loans at rates lower than what was available in the open market. This practice was often seen as an incentive to attract and retain skilled workers within the financial system. However, the Central Bank stated that such arrangements cannot continue under the new loan pricing model. After consultations with commercial banks, manufacturing companies, international financial institutions like the International Monetary Fund (IMF), and other stakeholders, the regulator concluded that staff loans, digital lending products, syndicated loans, and Islamic banking facilities will not be given exemptions.
The new model will officially take effect on September 1, 2025, for all new variable-rate loans. This means that borrowers who take new credit from that date will immediately fall under the KESONIA-plus-premium arrangement. Banks have also been given until February 28, 2026, to shift all existing variable-rate loans into the new system. Fixed-rate loans and loans denominated in foreign currency will remain under their existing arrangements, meaning borrowers in those categories will not see changes in their repayment terms.
The Central Bank described the development as one of the most significant changes in Kenya’s credit market since the government removed the controversial interest rate caps in 2019. At the time, interest rate controls were seen to have restricted lending to individuals and small businesses, but their removal opened up new possibilities for credit growth. With the introduction of the new pricing formula, CBK says its focus is on ensuring that the loan market is transparent, fair, and based on clear risk assessments.
As part of this new direction, CBK has directed all banks to make their lending rates and related charges public. The regulator has instructed financial institutions to publish their weighted average lending rates, the applicable premiums, and all additional fees on their official websites. This, the CBK explained, will allow customers to compare lending products more easily and make informed borrowing decisions.
The decision to include staff loans in the new model has drawn attention because it could raise costs for bank employees and directors who had previously enjoyed cheaper loans as part of their employment benefits. Industry observers say the new policy could reshape the way banks handle staff incentives, possibly leading to other non-financial perks being introduced to retain workers. On the other hand, ordinary borrowers are expected to benefit from a more transparent system that reduces hidden charges and makes lending practices clearer.
By setting a common standard for all categories of borrowers, the Central Bank of Kenya is reinforcing its role as a regulator determined to tighten oversight in the financial sector. The policy also reflects the government’s broader push to strengthen financial stability and protect consumers, while making Kenya’s credit market more predictable and efficient.
The transition period, which runs until February 2026, is expected to give banks enough time to adjust their systems and communicate with customers about the new structure. Analysts believe that while the changes may bring short-term discomfort for some borrowers, they could lead to a healthier lending environment in the long run.
With the CBK’s firm stand, staff loans will no longer enjoy special exemptions, and all lending must now reflect the new formula tied to the KESONIA benchmark. This marks a clear shift towards a uniform loan market where transparency and risk-based pricing take center stage.
