Companies with loan facilities pegged on Treasury bills are facing higher financing costs as interest rates on the securities continue to go up in weekly auctions.
Banks often price short- and medium-term loans to companies at the prevailing Treasury bill rate plus a premium. They do so to protect themselves from losing their margins when the cost of funds goes up as they compete with the Treasury for private sector deposits.
Listed companies such as EABL, Centum and Crown Paints are among those with shilling loans pegged on T-bills. They also have some facilities alternatively pegged on the Central Bank rate (CBR).
T-bill rates have been climbing since March after the start of the war between US-Israel and Iran triggered a jump in energy prices and global inflation. Investors reacted with demands of higher yields on government securities, to cover themselves against erosion of real returns due to inflation.
The rate on the 91-day T-bill has now climbed to 8.55 percent from 7.4 percent in March, the 182-day rate to 8.52 percent from 7.7 percent, and the 364-day rate from 8.2 percent to 8.76 percent.
Analysts expect continued upward pressure on the rates as long as inflation remains high.
“A time when fiscal risk and inflation is rising typically translates to the market demanding more premium especially on the short end of the yield curve,” said analysts at NCBA Investment Bank in an economic note.
The Central Bank of Kenya (CBK) also paused its run of 10 consecutive rate cuts in its April meeting, effectively halting the fall of cost of funding in the economy. Any subsequent rate increases will directly impact loan facilities that are priced on the CBR.
In its annual report for 2025, EABL listed a total of 10 loans valued at a cumulative Sh18.75 billion that were pegged on the six-month T-bill.
The company pays a premium of between 1.5 percent and 1.8 percent on top of the prevailing rate of the 182-day security on these loans, which are set to mature between June 2028 and June 2030.
Centum has held a number of loan facilities over the years that have been pegged on T-bills, the central bank rate and other international pricing benchmarks for foreign currency borrowings.
In 2025, the investment company listed a Sh1.33 billion loan on the books of its subsidiary Vipingo Development from Standard Bank of South Africa, that was priced at the prevailing 182-day T-bill rate plus 3.5 percentage points.
Its subsidiary Longhorn Publishers held a Sh559.5 million loan with Standard Chartered Bank Kenya priced at CBR plus four percent. Crown Paints said in its annual report for 2025 that it manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.
By the end of last year, it held short-term borrowings, overdrafts and term loans with lenders including KCB and NCBA totalling Sh1.43 billion to finance operations.
The short-term notes were priced at the rate of the 91-day T-bill plus 1.5 percent, and the other facilities at the respective lenders’ base rates plus premiums of between one and 2.5 percentage points.
Before the upturn in interest rates over the last three months, the companies had enjoyed a period of reducing financing costs on the floating rate loans when T-bill rates halved from a range of 16.7 to 17 percent in April 2024 to a range of 7.4 to 8.2 percent in March 2026.
The effect of higher T-bill rates does not just affect those with a direct rate peg on their loans, with the general cost of credit in the economy tending to go up in tandem with that of the securities due to the factor of cost of money for banks.
When T-bill rates go up, banks raise deposit rates to attract customer deposits and stay competitive in comparison to other investment assets, and then pass on the extra cost to borrowers.
Under the recently introduced revised risk based credit pricing framework, lenders can choose to deploy the CBR or the Kenya Shilling Overnight Interbank Average (Kesonia) as a base for pricing loans, before adding a premium that covers risk and other costs related to lending.
Kesonia is computed from the daily interbank lending rates, which are closely aligned to the CBR due to the implementation of an interest rate corridor that keeps the overnight rate within 0.5 percentage points of the central bank rate.
