IMF pushes for insurance on bank deposits

The IMF is also concerned that money laundering is thriving. It would like to see the bill passed by Parliament in 2009 assented and implemented.

The December 2009 CBK directive was intended to help the DPF assign the level of insurance that banks should place on each product, usually a percentage of money held under each account, ensuring that banks remit premiums match the risk profile inherent in each product.

At the time DPF director Rose Ndetho wrote in a circular: “In order to ensure that the requisite insurance cover is provided, with effect from January 1, 2010, member institutions registered under the DPFB are required to list the deposits for purposes of insurance premium assessment to include any products in the market that are deposits in nature such as foreign currency deposits and transaction accounts.”

She explained that the move had been prompted by growth in the banking sector in response to globalisation, technological advancement, economic vibrancy and increased customer sophistication.

Aggressive marketing

While aggressive marketing and re-orientation of products and services had contributed to deposit growth, it had also led to what she termed “adverse deposit products” as banks scrambled for a slice of the huge population with no access to formal financial services.

“It is therefore necessary to reiterate the importance of disclosing all deposit products to DPFB for adequate protection and cover as provided under the Banking Act,” Ms Ndetho said.

DPF currently requires banks to channel a proportion of their deposits to it as an assurance against loss of customer savings in the event of collapse, but it does not go into the dangers associated with a specific deposit product.

Despite the insistence of the IMF, bankers as represented by the Kenya Bankers Association have already argued against the earlier directive stressing that their products are passed as fit and proper by the Central Bank before they are rolled out into the market and that the directive would entail additional costs to their businesses.

The IMF boss welcomed the recent progress towards agreement on the draft constitution and expressed hope that it would establish political consensus in the country.