Region

Jurisdiction

Regulator

2015-01-15

Banking Circular No 1 of 2015 - Operationalizaton of the Kenya Banks\' Reference Rate (KBRR)

The Central Bank of Kenya introduced the Kenya Banks' Reference Rate (KBRR) in July 2014 to enhance transparency and improve transmission of monetary policy signals. Following a recent committee meeting, KBRR was revised from 9.13% to 8.54%. Effective from January 14th, banks will price their flexible rate loans based on this reference rate, with the aim of bringing individual bank interest rates as close as possible to the KBRR. Banks are expected to disclose any deviations from the reference rate, thus increasing transparency in credit pricing. By June 30th, existing flexible/variable credit facilities will be transitioned to the new framework. The Central Bank will continue working closely with stakeholders for a smooth and effective implementation of this framework.

Kenya

Central Bank of Kenya

KUU YA KENYA Haile Selassie Av P.O. Box 60000-00200 Nairobi, Telephone: 2860000, Fax: 340 BANKING CIRCULAR NO. 1 OF 2015 TO: ALL CHIEF EXECUTIVES OF COMMERCIAL BANKS AND MORTGAGE FINANCE COMPANIES OPERATIONALISATION OF THE KENYA BANKS' REFERENCE RATE (KBRR) The Kenya Banks' Reference Rate (KBRR) framework was introduced in July 2014 to enhance transparency in the pricing of credit as well as improving the transmission of monetary policy signals into changes in banks' lending rates.

Following the Monetary Policy Committee meeting held on 14th January, 2015 which retained the CBR at 8.50 percent, and considering the weighted 2-month moving average of the 91-day Treasury bill rate, the Central Bank of Kenya (CBK) has revised the KBRR from 9.13 percent to 8.54 percent.

The purpose of this Circular is to operationalize the KBRR as follows :-

The KBRR of 8.54 percent shall be effective from, 14th January, 2015 and will remain at this level until its next review in July 2015, or earlier if market conditions change drastically.
All banks and mortgage finance companies will price their flexible rate loans using the KBRR as the base rate.
For individual banks, the interest rate they charge their customers will be KBRR + K. We expect banks and mortgage finance companies to vary their lending rates to be as close as possible to KBRR.
Commercial banks and mortgage finance companies will disclose to their borrowers and to the Central Bank the breakdown of any deviation, K, from the KBRR, thereby enhancing transparency in pricing of credit and mortgage.
All flexible/variable credit facilities applied for shall be priced using the KBRR framework.
As indicated in the Banking Circular No. 4 of 2014, existing flexible/variable credit facilities shall be transitioned to the KBRR framework by 30th June 2015.

The CBK will continue working closely with the institutions and other stakeholders to facilitate a smooth and effective implementation of the framework. It will also work with the stakeholders to facilitate a wide dissemination of the framework to the public.

MATU MUGO ASSISTANT DIRECTOR, BANK SUPERVISION 14th January, 2015 Cc. Mr. Habil Olaka Chief Executive Officer Kenya Bankers Association International Life House Mama Ngina Street NAIROBI