In a significant move within the Kenyan financial sector, the United Bank of Africa (UBA) has announced a substantial reduction of its lending rates by three percentage points. This strategic decision, which places considerable pressure on other commercial lenders, coincides with the industry-wide rollout of a new loan pricing model – the Risk Based Credit Pricing Model (RBCPM), commencing on Monday, December 1, 2025. The RBCPM will be applied on variable-rate loans. The lender, whose parent is headquartered in Nigeria, confirmed that it will lower its base lending rate to 11.78 percent, down from the previous 14.79%, an adjustment that will be applied to both new and existing Kenya shilling-denominated credit facilities.
This development occurs against the backdrop of a broader regulatory shift designed to ensure that borrowers fully benefit from the Central Bank of Kenya’s (CBK) recent policy rate cuts, the transmission of which had been incomplete within the commercial banking system. While institutions such as KCB, Absa, and DTB Banks have publicly notified their customers of their impending transition to the new model, UBA has distinguished itself with this pronounced rate reduction.
“We are pleased to announce a reduction in our base lending rate, effective December 1, 2025,” adding that this action demonstrates its “commitment to making credit more affordable and accessible to all.” – UBA Bank Kenya.
UBA Bank Kenya in Strategy to Revitalize Loan Book
UBA’s aggressive pricing strategy appears to be a calculated effort to revitalize its loan book, which has contracted significantly to KES 937 million as of September 2025, down from KES 3 billion the previous year, positioning it as one of the smallest in the industry. This cautious approach to lending, undertaken during a period of rising industry-wide debt defaults, has resulted in a substantial liquidity ratio, indicating that the lender has been holding considerable cash reserves in anticipation of an improved economic climate. Concurrently, credit growth nationally has been sluggish, with lenders exercising restraint due to high default rates, while potential borrowers have been deterred by persistently high interest rates.
The catalyst for this sector-wide change stems from sustained pressure by the CBK, which has implemented consecutive cuts to its indicative rate as a signal for commercial banks to follow suit. However, banks had been reluctant, arguing that the Central Bank Rate (CBR) did not fully capture all market forces. The newly introduced pricing model addresses this by establishing the Kenya Shilling Overnight Interbank Average (KESONIA) as the common reference rate for determining lending rates.
As a market-based rate that closely aligns with the CBR, the use of KESONIA is intended to facilitate a more direct and efficient transmission of monetary policy. Under this framework, the total cost of credit disclosed to customers will be the sum of the KESONIA reference rate, a bank-specific premium (denoted as ‘K’), and any applicable loan fees. This transparency is anticipated to empower customers to compare offerings between lenders more easily and make informed financial decisions.
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