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Deposit insurance fund hived off CBK

Kenya Deposit Insurance Fund has officially been hived off from the Central Bank of Kenya paving the way for increased contribution by banks to secure customer savings. FILE PHOTO | NATION
Kenya Deposit Insurance Fund has officially been hived off from the Central Bank of Kenya paving the way for increased contribution by banks to secure customer savings. FILE PHOTO | NATION 

Kenya Deposit Insurance Fund has officially been hived off from the Central Bank of Kenya paving the way for increased contribution by banks to secure customer savings.

A new law effective from July 1 has been published in a special gazette and demands that banks make contributions to the insurance fund based on their risk perception on top of the flat rate contribution.

“In addition to the flat rate contribution, institutions shall contribute a percentage of their total deposit liabilities during the previous twelve months based on the risk-adjusted contribution methodology formulated by the [Kenya Deposit Insurance] Corporation,” reads part of the Kenya Deposit Insurance Act.

The flat rate is equal to 0.15 per cent of deposits held by a bank, with the floor set at Sh300,000. The deposit insured is still capped at Sh100,000 but the new Kenya Deposit Insurance Corporation can revise it upwards and increase the level of unusable working capital for banks.

“This is not only an important landmark but a necessity, for as a result, the corporation shall become more responsive towards addressing risks and threats to our financial system. We envision that this is critical towards promoting public confidence, thereby fostering financial stability in Kenya,” said CBK governor Njuguna Ndung’u in an earlier induction meeting of the board directors.

The insurance fund will examine the stability of financial institutions with the option of stepping in early before the collapse of a lender.

Aggrey Bett will serve as the chief executive of the new institution in an acting capacity following his recent appointment as the director of CBK’s Deposit Protection Fund where he replaced Rose Detho.

Data from CBK shows protected funds were only 10 per cent of total deposits last year indicating the huge losses depositors are exposed to in case of losses.

The protected funds were Sh196 billion against total deposits of Sh1.9 trillion. The ratio of insured funds to total deposits has been dropping over the years as customer savings grow at a faster pace.

There were one million accounts with more than Sh100,000 in savings at the end of last year. The Central Bank had committed to changing the insurance coverage that was set in 1989 after collapse of non-bank financial institutions.

The Deposit Protection Fund was formed after institutions fell over high defaults of recklessly issued loans. The banking sector has, however, gained stability with a tightened regulatory environment, with the last bank to have caved in being Charterhouse in 2006.

The fund recently started going after the private wealth of directors of collapsed banks after getting orders against directors of Trust Bank and Prudential Building Society.

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