New law to see depositors of collapsed banks get more cash

Tellers serving customers in a banking hall. (Photo: Wilberforce Okwiri, Standard)

Depositors will soon start enjoying increased cover on their money should lending institutions collapse. 

According to Kenya Deposit Insurance Corporation (KDIC) Acting Chief Executive Mohamud Ahmed, the agency is about to get approval to raise the deposit insurance cover from the current figure of Sh100,000.

“The review is set to be approved by the Treasury Cabinet secretary. Although international best practice talks of twice the per capita of a country, we are going to give more than that,” said Mr Ahmed at a press briefing in Nairobi Thursday.

Kenya’s Gross Domestic Product (GDP) per capita, a measure of average wealth of each citizen, stood at $1133.45 (Sh117,189) in 2015. Therefore, KDIC is likely to offer above Sh200,000 as the highest amount that depositors will be guaranteed to get in case a bank collapses.

Mitigate failure

Mr Ahmed said the corporation is, however, keen not to raise the coverage too high because this could trigger “a moral hazard” among banks once they know most of the deposits are secured.

As opposed to just taking action when the rot in the banks has already reached terminal stage, KDIC also wants to conduct regular checks in banks in order to minimise chances of having to put the lenders under receivership.

“We want to be proactive so that we will even be checking these banks after say, every six months, in conjunction with Central Bank of Kenya and advise accordingly,” he said. 

Mr Ahmed said this would help to mitigate bank failure so that even if it happens, it would be “painless” and enable depositors to access their money promptly.

“In case we see a bank in problems, we shall start applying resolution options in that bank while it is still a going concern. Closing a bank is like killing 50 per cent of the brand,” he said.

To avoid penalising efficient banks, the corporation boss said after three years, the premium could be based on lenders’ risk profile as opposed to a standard rate as it is currently.

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