Depositors in collapsed banks will receive compensation faster in proposed changes that seek to compel the Kenya Deposit Insurance Corporation (KDIC) to shorten the payout window after the liquidation.
Currently, the payouts drag on for up to six months after the liquidation of a collapsed lender.
New amendments to the Kenya Deposit Insurance Act have proposed to delete timelines to the payment of amounts payable as protected deposits instituting immediate payments to account holders in failed banks.
“The Kenya Deposit Insurance Act is amended in Section 28 by deleting sub-section (2),” Treasury Cabinet Secretary John Mbadi says in the Kenya Deposit Insurance Amendment Bill 2024.
“The amendment is in line with principle 15 of the International Association of Deposit Insurers core principles for effective deposit insurance systems (2014), which obligates deposit insurance systems around the world to reimburse depositors insured funds promptly, to contribute to financial stability.”
KDIC is currently required to insure each deposit placed with an institution provided that the maximum amount payable to a customer with respect to funds in any deposit accounts shall not exceed Sh500,000- the current coverage limit.
The corporation is however allowed up to six months to make a payment to a customer following the conclusion of liquidation of the institution insured.
KDIC at present fully covers 99 percent of all bank accounts in case of failure with the number of fully protected accounts standing at 106.2 million out of 107 million accounts as of the end of December 2023.
The statutory institution held Sh209.2 billion as the deposit insurance fund (DIC) as of December 2023.
KDIC was overseeing the liquidation of 19 institutions as of June 2023 including Charterhouse Bank Limited, Imperial Bank, Daima Bank, Dubai Bank Limited and Chase Bank Limited.
The Kenya Deposit Insurance Act could see more amendments soon with the institution mulling a review of the coverage limit from the current Sh500,000 to cushion depositors with larger bank balances.
KDIC has engaged Zamara Consulting for the purposes of potentially reviewing the current threshold of protected deposits.
The review is expected to factor in changes such as inflation and industry dynamics, including the size of deposits held by commercial banks.
“There is a need to review the coverage limits on a regular basis in order to take into account inflation, changes in real income, the composition and size of deposits and additional funding requirements,” KDIC said previously.
KDIC charges member institutions, who are banks, a premium based on their average deposits and risk where the base rate is set at 0.15 percent of the banks’ average deposits.
The risk-adjusted rate is based on the bank’s risk appetite while the fund sets a minimum premium of Sh300,000 per year while the maximum premium is set at 0.4 percent of the bank’s average deposits for a year.
