Lenders given 6-months to roll out risk-based loan pricing model

Commercial banks have six months to revise their lending rates to reflect the risk-based credit pricing model spearheaded by the Central Bank of Kenya (CBK).

The regulator said on Wednesday unlike when the model was first introduced, this time round the timelines for implementation have been specified.

CBK Governor Kamau Thugge said he has scheduled a meeting with commercial bank chiefs next week to iron out remaining issues.

Dr Thugge said there is largely a convergence between CBK and commercial banks on the Risk Based Credit Pricing Model (RBCPM).

"We have a meeting with the banks next week to iron out one or two things. Once that is done, we expect the implementation of this framework," he said during the post-Monetary Policy Committee's (MPC) meeting briefing on Wednesday.

On Tuesday, MPC - the apex bank's top decision-making organ - cut its key lending rate for the third time this year, lowering the Central Bank Rate (CBR) by 25 basis points to 9.50 per cent in a bid to stimulate economic activity and boost lagging private sector credit growth.

The MPC noted that the ratio of gross non-performing loans (NPLs) to gross loans remained unchanged at 17.6 per cent in April and June, despite a decline in average commercial bank lending rates.

While issuing timelines on how commercial banks should implement the pricing framework yesterday, Thugge said the revised model involves several new things.

As such, once it comes into force, all commercial banks will have three months to have their individual pricing models approved by their respective boards.

"And once they have been approved, we expect three months of implementation," he said.

"In sum, we expect a six-month implementation period. This is fairly short compared to what we have experienced in the last pricing model where it took quite a number of years for all banks to comply. So, within six months, we expect that to happen."

The risk-based credit pricing model is one of the efforts the regulator is implementing, apart from the lowering of the base lending rate, to encourage banks to inject cash into the economy through more credit to the private sector.

The risk-based model was first introduced in 2019 following the rollout of the Kenya Banking Sector Charter (KBSC).