CBK to inspect banks for compliance with risk-based credit pricing models

CBK Governor Dr. Kamau Thugge before the National Assembly's Committee on Finance and National Planning in regards to the implementation of Central Bank Rate (CBR) at Bunge Towers,Parliament,Nairobi . March 25th,2025. [Elvis Ogina,Standard] The Central Bank of Kenya will be carrying out inspection in all Banks in the country order to evaluate their compliance in implementation of their Risk Based Credit Pricing models (RBCP). CBK Governor Kamau Thugge told the National Assembly Finance Committee that any violations established during the onsite target inspections will be subject to enforcement and administrative actions as stipulated in the banking sector legal and regulatory frameworks. Thugge told the committee chaired by Molo MP Kuria Kimani that the introduction of the model was part of broader initiatives to address issues related to lending rates, interest rate capping and the establishment of a transparent framework for pricing credit risk. "The RBCP model sought to allow banks to price loans according to the riskiness of individual borrowers rather than using a one size fits all approach, banks were therefore required to submit the models to the Central Bank of Kenya for noting before implementation," said Thugge. He told the parliamentary committee that in the four year of the implementation of RBCP models the banks' lending rates have not been as timely a responsive to Monetary Policy Committee decisions as expected deeming it necessary to review the efficacy of the model. The Governor said that as of December last year 24 out of 38 commercial banks had core capital which was below Sh10 billion with the Central Bank asking them to submit their board approved strategic plans by April 1 this year outlining measures, timelines and milestones to meet new capital requirement. Thugge said they will engage the individual banks based on their capital build up to mitigate any unintended consequences to the banking sector stability, he said that the capital builds up plans will serve as a basis for monitoring progress towards compliance with the banks required to submit quarterly status updates to CBK. "Central Bank Rate has been lowered substantially since Monetary Policy Committee meeting in August last year with this measures expected to take the necessary steps to lower their lending rates further to stimulate growth in credit to the private sector and support economic activities," said Thugge. He said that to ensure that banks are implementing the Risk Based Credit Pricing Model with Central Bank of Kenya has embarked on site inspection of banks to ascertain that they are reducing their interest rates in line with the model. Thugge said that their amendments to the Banking act recently enacted by parliament any bank that has not passed on the benefits of reduced cost of funds to reduce the lending rates will be penalized in accordance with the law. He said that the Commercial Banks average lending rates have been declining gradually since December last year with commercial banks' lending rates standing at 16.4 percent in February this year down from 16.9 percent in December and 17.2 percent in November last year.

CBK to inspect banks for compliance with risk-based credit pricing models

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