Co-operative Bank has broken ranks with Kenya’s top lenders by anchoring both new and existing variable-rate Kenya Shilling loans to the KESONIA benchmark, offering rare clarity amid industry hesitation over the Central Bank’s new pricing model.
Co-op Bank Leads with KESONIA Adoption for Existing Loans
In a public notice issued this week, Co-operative Bank confirmed it will transition all existing variable-rate Kenya Shilling-denominated credit facilities to the Kenya Shilling Overnight Interbank Average (KESONIA) from 28th February 2026, aligning fully with the Central Bank of Kenya’s (CBK) revised risk-based credit pricing framework.
This move sets Co-op Bank apart from its peers, many of whom have opted to retain the Central Bank Rate (CBR) as the reference for repricing existing loans.
“Effective lending rates will be based on KESONIA + Customer specific Premium (K),” the bank stated, adding that monthly changes in KESONIA will apply automatically as published by CBK.
The bank’s decision signals a commitment to transparent, market-driven pricing, and positions it as a frontrunner in implementing CBK’s push for modernized interest rate benchmarks.
Industry Split: CBR vs KESONIA
While CBK has encouraged adoption of KESONIA to enhance monetary policy transmission and align with global standards, it has not issued binding enforcement guidance, leaving room for interpretation.
As a result, Equity Bank, KCB Bank, and Diamond Trust Bank have chosen to retain CBR for repricing existing facilities, citing internal risk models and customer transition concerns. This divergence has created confusion among borrowers, with some questioning whether the reforms will deliver fairer rates or entrench opacity.
According to TechTrendsKE, CBK Governor Dr. Kamau Thugge has urged lenders to stop “hiding behind excuses” and begin lowering rates under the new model. Yet, without a mandatory directive, banks remain split on implementation timelines and scope.
What KESONIA Means for Borrowers
KESONIA reflects the actual overnight interbank lending rate, making it a more dynamic and market-sensitive benchmark than the CBR, which is set periodically by CBK’s Monetary Policy Committee. For borrowers, this could mean:
- Greater transparency in how rates are derived.
- More frequent rate adjustments, both upward and downward.
- Potentially lower rates for low-risk customers, depending on the bank’s premium (K).
However, critics warn that riskier borrowers may face higher premiums, and that banks retaining CBR may offer more predictable pricing in the short term.
Reform or Fragmentation?
Co-op Bank’s full embrace of KESONIA may pressure other lenders to follow suit. But unless CBK mandates uniform adoption, Kenya’s credit market risks fragmentation, with borrowers navigating inconsistent pricing models across institutions.
