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Banks exclude fees, charges on existing loans in pricing change
Kenya Bankers Association Acting General CEO Raimond Molenje speaks during the Launch of the Chora Plan financial literacy campaign on June 11, 2024 at the Serena Hotel in Nairobi.
Customers with existing loans will not pay origination/processing fees in the transition to the new risk-based credit pricing model (RBPCM) starting in March.
Lenders have notified customers with facilities existing before December 1, 2025, that the loans will not attract fees and charges applicable to new facilities, including origination, processing, negotiation and commitment fees.
All loans existing before December 1, 2025, are currently being transitioned to the new pricing model ahead of the February 28 deadline, after which all facilities will fall under the same costing criteria.
Commercial banks have notified customers of the changes as they require clients with existing loans to sign off on new terms.
Kenya Bankers Association (KBA), the banking industry lobby, says fees and charges are excluded from existing loans, having been previously paid at the disbursement of the facilities.
“What this means is that these fees and charges apply when you are taking a new loan or seeking a top-up. The fees are usually one-off, and hence they will not be costs to existing customers as we transition to the new pricing model,” said Raimond Molenje, KBA Chief Executive.
“The notices are to assure customers that they would not be subjected to fees that were already paid for an existing facility.”
Banks, including DTB, Co-operative, Equity, Kingdom, the National Bank of Kenya (NBK) and SBM, have served notices to customers ahead of the February 28 deadline, which marks the full transition into the new risk-based pricing framework.
Customer loans attract at least 10 distinctive charges that are over and above the interest rate, which add to the total cost of credit.
According to the total cost of credit website, bank charges include negotiation or appraisal fees, annual maintenance fees, a mobile banking notification charge and miscellaneous charges.
Specific types of loans, such as mortgages and motor vehicle loans, attract external charges, including credit life insurance, legal fees, stamp duty, valuation fees, property insurance fees, and brokerage fees.
“The total cost of credit equals the Central Bank rate + K (premium) plus fees and charges, where fees and charges include origination, processing, negotiation and commitment fees as applicable to new facilities issued from December 1, 2025,” KCB and Credit Bank told customers in separate notices last week.
“Existing customers will not be subjected to the fees and charges component of the revised RBCPM, which applies only to new facilities.”
Banks have been transitioning to the new risk-based pricing model since last December, and are basing fresh costs on a new industry benchmark anchored on either the Kenya Shilling Overnight Interbank Average (Kesonia), formerly the interbank rate or the Central Bank Rate (CBR).
The total cost of credit is arrived at by adding a premium labelled K, fees and charges to the chosen benchmark rate. Most banks have adopted the CBR as their new primary benchmark, including KCB, DTB, Equity, Credit Bank, NBK and SBM.
Only a handful of lenders have adopted Kesonia, including Co-op and Kingdom, while the remainder of banks are borrowing from both benchmarks.
The new risk-based pricing model envisions creating transparency in the costing of loans while also closely mimicking the direction of interest rates in the market as signalled by the Central Bank of Kenya (CBK) through monetary policy.
Pricing framework
Average commercial bank loan rates fell gradually through 2025 to December, ahead of the transition to the new pricing framework, with the mean rate falling to 14.82 percent from 16.9 percent a year prior.
Absa Bank Kenya, Citibank NA Kenya and the Middle East Bank made the largest cuts in borrowing costs in 2025, as most banks extended relief to borrowers.
Thirty-four out of 38 banks reduced their loan costs in the review period, while four small commercial banks bucked the trend, raising interest cost on loans, among them: UBA Kenya, Kingdom Bank, Consolidated Bank of Kenya and DIB Bank Kenya.
All banks are required to disclose lending costs to clients on their website and on CBK’s total cost of credit website to facilitate transparency.
Banks are yet to update new loan costs and have attributed the delayed updates to the ongoing transition in pricing criteria.
“We paused updating the website to be able to factor in the new risk-based credit pricing model and are working with a consultant to be able to make the necessary changes,” said MrMolenje.
