The Central Bank of Kenya (CBK) said it will revise its current Risk-Based Credit Pricing Model (RBCPM), an integral policy used by banks when determining lending rates.
The decision is informed by the need to enhance lending behaviour and transparency, which the bank said must go in handy with market realities.
The apex bank has since invited stakeholders to submit their views on the proposed update, which would see the Central Bank Rate (CBR) adopted as the common reference rate for pricing loans.
“CBK proposes the use of the policy rate (Central Bank Rate) as the common reference rate for determining lending rates in the Kenyan market. The Central Bank Rate reflects the cost of funding to the banks,” the notice reads in part.
It comes five years following the rollout of the RBCPM in 2019, which was developed jointly with the banking sector to allow for fairer and risk-aligned loan pricing.
The review is timely to ensure the model continues to complement ongoing reforms in the financial sector.
Also Read: How risk-based pricing affects your loan pricing
What is Risk-Based Pricing?
Risk-Based Pricing allows banks to assign interest rates based on a borrower’s individual credit risk profile.
Borrowers with poor credit history or higher risk are charged higher interest rates, while those with good credit standing benefit from lower rates and more favorable credit terms.
The approach promotes responsible borrowing and lending practices by ensuring that not all customers pay a flat rate for the same loan product.
The CBK’s proposal is currently open for public consultation as part of its commitment to inclusive policy development in Kenya’s financial sector.
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