The step taken by the Kenya Deposit Insurance Corporation, raising the amount payable to depositors in the event that a bank collapses, will go a long way in instilling customer confidence.
In the past, this amount was limited to only Sh100,000, meaning that those whose money was held up were at serious risk of sliding into illiquidity at short notice. Considering that majority of depositors have less than Sh1 million in their accounts, raising the amounts payable in the event of a collapse will shield more Kenyans from needless pain.
However, it is still critical that the regulator as well as other relevant government agencies continually ensure that banks remain liquid and meet the necessary threshold to remain strong and stable. This is the best guarantee as it is always better to prevent a malady than to cure it.
The move should have other ripple effects; such as encouraging high net worth individuals to keep their money in fixed deposits, thus creating a pool from which banks can lend to their customers. In turn, they too should comply with the rules set out by the corporation and ensure they pay their dues to ensure that the system works.
Going forward, the amount payable should also be reviewed every ten years rather than the 30 that it has taken to review the current rate.
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Note: The results are not exact but very close to the actual.
