Companies with loans linked to Treasury bill rates are beginning to feel the impact of rising borrowing costs as yields on government securities continue to edge higher in weekly auctions.
Many lenders price short- and medium-term corporate loans using prevailing Treasury bill rates plus an additional margin. This pricing model helps banks preserve their profit margins when funding costs rise, particularly as they compete with the government for deposits from investors.
Several listed firms, including East African Breweries Plc (EABL), Centum Investment Company and Crown Paints Kenya, have borrowing facilities tied to Treasury bill rates. Some of their loans are also linked to the Central Bank Rate (CBR).
Treasury bill yields have been on an upward trajectory since March, following heightened geopolitical tensions involving the United States, Israel and Iran, which fuelled concerns over rising energy costs and global inflation. As inflation expectations increased, investors demanded higher returns on government securities to safeguard the value of their investments.
The yield on the 91-day Treasury bill has risen from 7.4 percent in March to 8.55 percent, while the 182-day paper has climbed from 7.7 percent to 8.52 percent. The 364-day Treasury bill rate has also increased, moving from 8.2 percent to 8.76 percent.
Market analysts expect rates to remain under upward pressure if inflationary concerns persist.
According to analysts at NCBA Investment Bank, periods characterised by rising fiscal risks and inflation typically lead investors to demand higher premiums, particularly on short-term government debt.
At the same time, the Central Bank of Kenya halted a series of ten consecutive interest rate cuts during its April monetary policy meeting, signalling a pause in the decline of funding costs across the economy. Any future increase in the CBR would directly affect loans priced using the benchmark rate.
EABL disclosed in its 2025 annual report that it holds 10 loan facilities worth a combined KSh 18.75 billion linked to the six-month Treasury bill rate. The brewer pays an additional margin of between 1.5 and 1.8 percentage points above the prevailing 182-day Treasury bill yield on the facilities, which mature between 2028 and 2030.
Centum also maintains various loans linked to Treasury bill rates, the CBR and international reference rates. Among them is a KSh 1.33 billion facility held by its subsidiary Vipingo Development, obtained from Standard Bank South Africa and priced at the six-month Treasury bill rate plus 3.5 percentage points. Another subsidiary, Longhorn Publishers, had a KSh 559.5 million loan from Standard Chartered Bank Kenya priced at four percentage points above the CBR.
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Crown Paints noted that it manages interest rate exposure through a mix of fixed- and variable-rate borrowings. By the end of 2025, the manufacturer had KSh 1.43 billion in short-term loans, overdrafts and term facilities from lenders including KCB and NCBA. Some of the short-term facilities were priced at the 91-day Treasury bill rate plus 1.5 percentage points, while others carried lender base rates with additional margins ranging from one to 2.5 percentage points.
The recent increase in Treasury bill yields follows a prolonged period of declining financing costs. Between April 2024 and March 2026, Treasury bill rates fell from about 17 percent to between 7.4 percent and 8.2 percent, providing relief to borrowers with floating-rate debt.
However, rising Treasury bill rates affect more than just loans directly pegged to government securities. Higher yields generally increase the overall cost of credit as banks raise deposit rates to attract funds and remain competitive with government instruments. These additional costs are often passed on to borrowers.
Under the revised risk-based credit pricing framework, banks may use either the Central Bank Rate or the Kenya Shilling Overnight Interbank Average (Kesonia) as the benchmark for loan pricing before adding risk and operational margins. Kesonia closely tracks the CBR due to the central bank’s interest rate corridor, which keeps overnight interbank lending rates within half a percentage point of the policy rate.
