The move by the Kenya Deposit Insurance Corporation (KDIC) to increase compensation for depositors in collapsed banks from Sh100,000 to Sh500,000 is commendable. For sure, the increase was long overdue considering that the limit was set three decades ago and the low compensation exposed wealthy depositors to heavy losses in the event of bank closures.
Though it is a big step in cushioning savers, government agencies should work to strengthen the banking system to prevent banks from collapsing as was the case in 2015 and 2016.
KDIC chief executive Mohamud Ahmed said already they are working on a mechanism with CBK to identify struggling banks early for turnaround efforts before they collapse.
Depositors and investors in Kenya were rattled three years ago when the central bank took control of three mid-sized lenders; Chase Bank, Imperial Bank and Dubai Bank.
Imperial Bank went under while holding an estimated Sh88 billion in deposit while Chase Bank had Sh95 billion of public savings but later reopened. Dubai Bank also collapsed during the period.
The banking sector is critical to the economy, therefore the agencies tasked with monitoring it should weed out illegal actions that pose risks to it.
As such, strengthening the institutions as well as their oversight is more attractive to customers than compensating them after the fact. This is the first option at all times.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
