Absa joins race to adopt new loan pricing model

Absa Bank Kenya has become the latest tier-one lender to unveil its new loan pricing system, joining a growing rush by financial institutions to comply with a central bank deadline for implementing revised lending models aimed at making borrowing costs more transparent.

In a customer notice, Absa said it would transition to the Central Bank of Kenya's (CBK) Revised Risk-Based Credit Pricing Model (RBCPM) framework starting December 1, making it the second major bank after KCB Group to publicly commit to the new system.

The move comes as pressure mounts on Kenya's 38 commercial banks to meet the CBK's year-end deadline for implementing the new framework, designed to strengthen the transmission of monetary policy changes to borrowers.

"All new local-currency variable-rate loan facilities processed from 1 December 2025 will be priced under the revised model, which comprises a common reference rate plus a Premium," Absa said in the notice, confirming the new loans would be based on the Central Bank Rate (CBR) plus a customer-specific risk premium.

The banking sector's race to comply follows recent frustration expressed by CBK Governor Kamau Thugge, who had noted that only one unnamed bank had sought regulatory approval for the new model despite the looming deadline. Thugge had criticised lenders for being quick to raise borrowing costs during tightening cycles but slow to lower them during easing periods.

The slow adoption has highlighted tensions between the regulator and the banking sector. Despite the CBK cutting its benchmark rate by 25 basis points to 9.25 per cent earlier this month - the eighth reduction in an easing cycle that began last year - average commercial bank lending rates remained elevated at 15.1 per cent as of September.

Under Absa's new framework, existing variable-rate loans will transition to the revised model by February 28, 2026, in line with CBK guidelines. The bank committed to "fully disclosing all applicable fees, charges, and the total cost of credit" to customers.

The collective move by the two major banks increases pressure on remaining institutions to accelerate their compliance efforts ahead of the CBK's final Monetary Policy Committee meeting of the year, scheduled for December 9, where policymakers will evaluate policy effectiveness amid the ongoing transition.

Other tier-one banks, including NCBA Group, have indicated they are adjusting systems to comply with the new regime but had not previously committed to the December 1 start date for new loans.