Kenya could raise cush­ion on savers’ de­posits to $5,000

Com­pen­sa­tion to de­pos­i­tors is made from the levies that banks pay to KDIC an­nu­ally

The East African - - BUSINESS - By JAMES ANYANZWA The Eastafrican

Kenya is seek­ing to in­stil con­fi­dence in the fi­nan­cial sec­tor by propos­ing a larger mon­e­tary cush­ion for de­pos­i­tors with more than Ksh100,000 ($1,000) in com­mer­cial banks that col­lapse.

Since the late 1980s, Kenya has been com­pen­sat­ing de­pos­i­tors of failed in­sti­tu­tions up to a max­i­mum of Ksh100,000 ($1,000).

While this amount fully cov­ers small de­pos­i­tors who con­sti­tute over 90 per cent of the total de­posit ac­counts, it leaves medium to high net­worth savers who con­trol over 90 per cent of an es­ti­mated Ksh2.76 tril­lion ($27.6 bil­lion) worth of de­posits highly ex­posed in the event of bank fail­ure.

Just a pro­posal

How­ever, The Eastafrican un­der­stands that the Na­tional Trea­sury is look­ing at the op­tion of in­creas­ing the com­pen­sa­tion to Ksh500,000 ($5,000).

“There is a pro­posal to in­crease it to Ksh500,000,” a gov­ern­ment source said.

The Trea­sury’s direc­tor gen­eral in-charge of the Bud­get, Fis­cal and Eco­nomic Af­fairs depart­ment Dr Ge­of­frey Mwau told The Eastafrican that the pro­posal is still un­der dis­cus­sion by the Na­tional Trea­sury and the board of the Kenya De­posit In­sur­ance Cor­po­ra­tion.

“The cur­rent amount of the in­sured de­posits has not be re­viewed for a long time and many things have changed since. There is a pro­posal to in­crease the amount but it first needs to be dis­cussed by the board,” said Mwau.

The Kenya gov­ern­ment con­sid­ers its fi­nan­cial sec­tor as crit­i­cal in the coun­try’s plan to at­tain a mid­dle in­come sta­tus by 2030. But the coun­try has been trail­ing Uganda in terms of de­pos­i­tors’ in­sur­ance cov­er­age de­spite suf­fer­ing a se­ries of bank fail­ures.

Re­ceiver­ship

While Kenya has been pay­ing off de­pos­i­tors of col­lapsed banks up to Ksh100,000 ($1,000), in Uganda the de­pos­i­tors are cov­ered up to Ush5 mil­lion ($1,321), and the law pro­vides that all de­pos­i­tors be paid within 90 days of a bank fail­ing.

The failed in­sti­tu­tion should also have its as­sets auc­tioned within six months of its takeover by the cen­tral bank.

In Tan­za­nia, the De­posit In­sur­ance Board has in­creased the amount of pro­tected de­posits from Tsh500,000 ($218) to Tsh1,500,000 ($654), while the De­posit Guar­an­tee Fund of Rwanda pro­tects el­i­gi­ble de­posits up to Rwf500,000($573) per de­pos­i­tor per mem­ber bank and mi­cro­fi­nance in­sti­tu­tion.

In 2016, the Kenya De­posit In- surance Cor­po­ra­tion (KDIC), the state-owned agency man­dated to act as the prin­ci­pal re­ceiver for failed mem­ber in­sti­tu­tions and im­ple­ment fail­ure res­o­lu­tion mech­a­nisms to trou­bled in­sti­tu­tions jointly with the Ustrea­sury car­ried out a study on the pos­si­bil­ity of re­view­ing the in­sured de­posits to boost con­fi­dence in the bank­ing sec­tor.

Com­pen­sa­tion to de­pos­i­tors is made from the levies that banks pay to KDIC ev­ery year. Banks cur­rently pay pre­mi­ums to KDIC at the rate of 0.15 per cent of their total de­posits in a year but plans are un­der­way to switch this model to a risk-based one where high risk and un­sta­ble lenders pay more com­pared with the sta­ble in­sti­tu­tions.

Cur­rently, if a bank is wound up in Kenya de­pos­i­tors are paid the max­i­mum of Ksh100,000 ($10,000) and any ex­tra cash above this amount is re­alised from the pro­ceeds of the sale of the as­sets of the lender dur­ing liq­ui­da­tion.

This has sub­jected large de­pos­i­tors to the agony of wait­ing and un­cer­tainty over whether the pro­ceeds from the sale of the bank’s as­sets will be enough to com­pen­sate them.

Mas­sive trans­fers

In Au­gust 2015, Kenya’s Dubai Bank col­lapsed, fol­lowed by Im­pe­rial Bank (Oc­to­ber 2015) and Chase Bank (Fe­bru­ary 2016) shak­ing de­pos­i­tors’ con­fi­dence in the bank­ing sec­tor and lead­ing to mas­sive trans­fers of de­posits from small banks to large banks.

East Africa’s de­posit in­sur­ers have started shar­ing in­for­ma­tion on best prac­tices as a first step to­wards merg­ing the rules and reg­u­la­tions gov­ern­ing the pro­tec­tion of de­pos­i­tors’ cash in the re­gion.

In­creased sur­veil­lance

East African bank­ing reg­u­la­tors are work­ing to im­prove the op­er­a­tions of their de­posit pro­tec­tion in­sur­ance schemes to boost con­fi­dence in the bank­ing in­dus­try.

This comes af­ter the mem­ber states through the Mon­e­tary Af­fairs Com­mit­tee re­solved in 2016 in Ki­gali to jointly put in place mea­sures to deal with trou­bled banks.

The mea­sures in­cluded in­creased sur­veil­lance of the cash po­si­tion of banks with in­ten­tions of in­ter­ven­ing early to deal with prob­lems aris­ing.

The mem­ber states also agreed that each coun­try de­vel­ops a Res­o­lu­tion Fund­ing Frame­work and im­prove prompt cor­rec­tive ac­tions for banks within East Africa.

Amount of in­sured de­posits has not be re­viewed for a long time while many things have changed since.” Dr Ge­of­frey Mwau, at Kenya’s Na­tional Trea­sury

Pic­ture: FILE

Anx­ious Chase Bank cus­tomers read a clo­sure no­tice at the bank’s at Mama Ngina Street branch in Nairobi in 2016 af­ter it was put un­der re­ceiver­ship by the Cen­tral Bank of Kenya.

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