The Central Bank of Kenya. CBK data shows that insured customers’ deposits dropped to 10.3 per cent in 2012 from 11.5 per cent in 2011. FILE
What you need to know:
The number of accounts holding Sh100,000 and above rose to 960,070 from 888,419 an year earlier, the CBK data shows.
Total deposits rose by 14.8 per cent to Sh1.7 trillion, exposing more savers to loss in the event of a bank collapse as the volume of insured deposits increased at a slower pace ( three per cent) to Sh176 billion.
The proportion of un-insured customer deposits held by commercial banks increased last year as the number of accounts with over Sh100,000 balance rose to nearly one million.
Central Bank of Kenya (CBK) data shows insured customers’ deposits dropped to 10.3 per cent in 2012 from 11.5 per cent in 2011. The number of accounts holding Sh100,000 and above rose to 960,070 from 888,419 an year earlier, the CBK data shows.
Total deposits rose by 14.8 per cent to Sh1.7 trillion, exposing more savers to loss in the event of a bank collapse as the volume of insured deposits increased at a slower pace ( three per cent) to Sh176 billion.
The deposit protection fund (DPF) collects a premium from all commercial banks to compensate depositors in instances of a bank collapses for savings not exceeding Sh100,000 each. There has been a push to have the amount reviewed upwards to reflect the economic changes in the country.
“There is something in place to increase the amount to something that is more realistic as Sh100,000 is no longer in line to the economic reality,” said Habil Olaka, CEO of Kenya Bankers Association.
There are 15.8 million deposit accounts in the country with most of them being salaries accounts.
About 93 per cent of individual accounts are protected by the deposit protection fund. The current annual premium to be paid by bank is set at 0.15 per cent of total deposits, with a minimum of Sh300,000 for each lender.
The banks however have to deposit a provisional premium which should not be in excess of 0.4 per cent of their unaudited deposits till an assessment is conducted by the DPF in July of each year.
“We will review the deposit insurance coverage which has remained constant since it was set in 1989. This coverage will be subjected to periodic reviews to ensure that it is credible enough to meet our public policy objective,” said Central Bank governor Prof Njuguna Ndung’u in a conference on deposit insurances hosted earlier this year.
Last year the government passed the Deposit Insurance Act which set the Deposit Protection fund as an autonomous body, currently it’s a division of CBK; giving it mandate to address weaknesses in member institutions before collapse.
The Act is however yet to come in play as the regulations dictating its implementation are yet to be published.
The act also widens the scope of investment options available to the protection fund as currently it is only limited to government securities that are considered risk free.
Last year the fund made a surplus of Sh5.1 billion from a principal of Sh28 billion, to close the year with a total base of Sh33.2 billion. There are currently 20 financial institutions in liquidation, which were holding a total of Sh20.8 billion at the time of liquidation.
As at 2011 the fund had paid out Sh1 billion of the insured Sh1.3 billion. Deposit Protection Fund was formed in late 1980’s when the Kenyan banking sector was experiencing much turmoil with collapse of commercial banks owing to high defaults of loans issued under political patronage.
The banking sector has however gained stability with a tightened regulatory environment with the last bank to have collapsed being Charterhouse in 2006.
