Kenyan bank employees will no longer benefit from lower loan rates due to the new CBK pricing model.

Central Bank of Kenya Stands Firm on Borrowing Terms

The Central Bank of Kenya (CBK) has decisively turned down proposals to modify preferred borrowing terms that currently benefit bank employees. This decision means that many insiders, who have enjoyed lower interest rates on loans compared to average customers, will now face increased borrowing costs.

According to regulators, only loans that are controlled by foreign currencies or those with fixed rates will be excluded from the new risk-based pricing model, which is set to fully launch by March 2026.

Historically, banks have offered significantly discounted rates on loans for employees and directors. This practice has been a way to attract and retain talent, especially concerning personal loans, auto loans, and mortgages. Such insider rates have often been seen as essential perks in a competitive industry where skilled professionals are highly sought after.

“The new model will be applied to all variable-rate loans, aside from those controlled by foreign currency. Pricing is largely affected by external factors, especially currency risk and fixed-rate loans,” the CBK explained in a notification dated August 26.

This decision comes after discussions with various stakeholders, including banks, manufacturers, and the International Monetary Fund (IMF), who requested numerous exemptions, particularly concerning employee loans and digital lending products. Nonetheless, the CBK has maintained a firm stance, asserting the need for uniformity.

This represents a significant shift in Kenya’s credit pricing framework, reminiscent of the changes following the abolition of interest rate caps in 2019. The implications of this policy shift may substantially reshape the relationship between lenders and borrowers.

Lenders will now have to decide whether new loans will be recorded as fixed or variable. Borrowers who opt for fixed rates may be shielded from rising interbank rates. However, they also risk missing out on potential profits should market conditions sway in their favor.

Starting September 1, the bank will implement the new benchmarks for incoming loans. Full compliance will take up to six months, providing lenders time to adjust risk assessments and obtain the necessary board and CBK approvals for existing facilities, which must also be transitioned within this timeframe.