The Central Bank of Kenya (CBK) has warned that Sh695.3 billion in banking sector assets are exposed to risks following the discontinuation of the London Interbank Offered Rate (Libor), a key global interest rate benchmark.
According to the 2021 Banking Supervision Report, 27 local banks had products priced using Libor, which ceased being published after December 2021. These included loans valued at Sh450.5 billion, Tier II capital instruments worth Sh88.8 billion, and other exposures totaling Sh156 billion across deposits, placements, and off-balance sheet commitments.
The Financial Conduct Authority (FCA) had mandated Libor's phase-out since 2017, citing manipulation scandals. It ordered the benchmark's termination for most currencies by December 2021, with remaining US dollar settings ceasing by June 2023. CBK noted this created legal, operational, and reputational risks for financial institutions.
To address the transition, banks are revising loan contracts, training staff, and upgrading systems to adopt Alternative Reference Rates (ARR). The CBK emphasized ongoing engagement with customers to manage the shift, while highlighting Kenya's exposure through sovereign loans like the Standard Gauge Railway project.
