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Cabinet Secretary approval required before loan interest rate adjustments: Clarification by the Supreme Court

The Central Bank of Kenya (CBK) is reviewing its current risk-based credit pricing model. This model involves banks setting their lending rates based on the CBK’s base rate and a borrower’s risk profile, rather than applying a uniform interest rate. Borrowers with a higher risk profile get higher interest rates on their loans. This model has, however, led to some banks overcharging their clients and imposing additional fees that exceed the true underlying risk. As a result, CBK is proposing to introduce a new model where all loan interest rates will be tied to the Central Bank Rate plus a clear, bank-specific margin that will be published 30 days before any change.