It took me a few minutes to understand your question so maybe you want to re-read and correct it.

First you explain a situation where the bank is recieving a fixed rate for loans issued and paying variable rates for deposits. In a situation like this swaption is not the best risk management technique the spread between the spot rate and the rate the bank give for deposits very much absorb the short term rate risk.
But if this is a textbook question then anyone can scratch some simple to complex risk management techniques but under normal business sense Swap will not come into the picture because of so many other factors.

Emlyn, Under the exact hypothetical scenario you presents, swap is not viable.

An interest rate swap for KCB seems somewhat unnecessary given it pays zero interest rate for its deposits

Not sure you understand the purpose of an interest rate hedge especially in the Kenyan context i.e. you only do search a hedge if you believe that interest expense on a given a loan will be higher than interest received. Hardly likely to happen for most banks. Except HF which has a serious mismatch between deposits and loans

Hi Emlyn,

A hedge is essentially taken to protect against market risk. Deposits rates on the other hand are not really mkt rissk but determined by the management of a bank based on various facters such as theeir liquidity, asset growth plans, cbr rate etc.

An interest rate swap will be used to hedge against adverse movement in a mkt traded benchmark such as libor. Some facilities / bonds issued at libor + spread will be at the mercies of libor movements (for a moment ignoring the manipulation scandal for sm london banks), should such a rate rise in future.

So essentiialy it boils down to: will u take A swap to hedge against a management decision or market risk (which the bank wont have control). Thats why it may not apply in the scenario u describe