Absa Bank Kenya has announced that it will transition to the Central Bank of Kenya’s Revised Risk-Based Credit Pricing Model beginning December 2025, marking a significant shift in how loan facilities are priced across the banking sector.
The move follows the rollout of the updated framework by the Central Bank, which aims to enhance transparency, align lending with customer risk profiles, and strengthen responsible credit practices across the financial system. All commercial banks are expected to implement the revised model by the first quarter of 2026.
In a public notice, Absa said all new local-currency variable-rate loan facilities processed from December 2025 will adopt the new structure, which is based on the Central Bank Rate (CBR) plus a customer-specific premium known as K.
The premium reflects multiple factors, including borrower risk profile, credit history, collateral quality, and overall creditworthiness. Under the revised framework, banks must demonstrate that their pricing premiums are anchored in verifiable, data-driven assessments of borrower risk.
New Loan Pricing: How It Will Work
For new loans issued from December 2025, Absa will price credit using:
Loan Interest Rate = CBR + Premium (K)
The CBR, set by the Monetary Policy Committee (MPC), will serve as the uniform reference rate for all banks. This structure replaces past disparities in base lending rates and ensures comparability across institutions.
The premium will vary from customer to customer based on risk assessments and internal scoring models. This means borrowers with stronger credit histories, improved cash flows, and lower risk profiles will receive more favourable pricing.
The shift aligns with CBK’s push for more accurate risk pricing within the banking industry, following extensive reforms meant to balance consumer protection with the need to expand access to credit.
Existing Loans to Transition by February 2026
Absa clarified that all existing local-currency variable-rate loans with offer letters dated before 1 December 2025 will continue operating under current terms until they are transitioned to the new framework.
The migration of existing facilities must be completed by 28 February 2026, in line with Central Bank guidelines. Customers will be notified of any changes and receive updated disclosures on their applicable premiums and total cost of credit.
Fixed-rate loan facilities issued before the transition will not be affected unless renegotiated or restructured.
Commitment to Transparency and Customer Fairness
Absa emphasised that throughout the transition, it will continue to maintain full disclosure of all charges, fees, and total cost of credit to customers. This requirement has been central to CBK’s broader reforms, which seek to ensure borrowers understand how credit is priced and how changes in the policy rate affect repayments.
“In line with our commitment to transparency and treating customers fairly, all applicable fees, charges, and the total cost of credit will continue to be fully disclosed to customers,” the lender said.
The bank added that responsible lending remains a central pillar of its operating philosophy, positioning the institution as a key driver of sustainable credit access in the Kenyan economy.
Sector-Wide Implications
The revised pricing model is one of the most significant regulatory shifts for Kenya’s credit market in recent years. It represents a move away from uniform pricing approaches and toward more granular, risk-aligned lending that rewards prudent borrowing behaviour.
Analysts say the updated framework could improve pricing fairness, reduce hidden cost variations across lenders, and lead to stronger credit discipline among borrowers. However, it may also result in higher loan costs for customers considered high risk based on repayment history, business stability, or credit data.
The transition also places stronger compliance obligations on banks, requiring detailed documentation for every loan pricing decision and enhanced internal credit scoring systems.
For banks, the model offers flexibility to better manage risk while expanding access to credit for segments that traditionally faced barriers under standardised pricing structures.
Impact on Borrowers
The transition means customers will begin experiencing:
• More personalised interest rates based on individual or business risk
• Greater transparency in how banks arrive at final pricing
• Closer correlation between CBR movements and loan repayments
• More predictable disclosures on total cost of borrowing
Borrowers with stable incomes, strong credit records, and consistent repayment patterns may benefit from lower premiums. Conversely, those with weaker financial histories may see higher pricing until their risk levels improve.
Financial advisors recommend that borrowers begin reviewing their credit profiles ahead of the transition to understand their likely risk grading under the new regime.
Absa Encourages Customer Engagement
Absa encouraged customers with questions about the revised framework to reach out through their Relationship Managers, visit any Absa branch, or contact the bank’s 24-hour call centre.
The bank reaffirmed its commitment to supporting individuals and businesses through responsible lending practices that align with national financial sector reforms.
As the industry prepares for the February 2026 deadline, Absa’s early adoption positions the institution among the first large banks to publicly communicate its rollout plan.
