7,000 Dubai Bank customers face uncertain wait for deposits
A Dubai Bank branch in Nairobi. The lender has been shut for breaching banking laws. PHOTO | FILE |
What you need to know:
CBK on Friday appointed KDIC to take over the bank’s operations for one year “to protect the interests of depositors, creditors and the public,” noting that it was in a weak financial position and had breached banking laws.
More than 7,000 customers holding about Sh1.7 billion deposits in Dubai Bank face an uncertain wait before accessing their cash following collapse of the lender.
The savers are waiting to see how fast the bank’s receiver manager, the Kenya Deposit Insurance Corporation (KDIC), can ascertain and pay their claims from the lender’s assets.
Other lenders that may have had deposits with Dubai Bank and customers holding guarantee letters and similar instruments issued by the bank are also set to suffer uncertainty.
The Central Bank of Kenya (CBK) on Friday appointed KDIC to take over the bank’s operations for one year “to protect the interests of depositors, creditors and the public,” noting that it was in a weak financial position and had breached banking laws.
“KDIC will release more information about the resolution of Dubai Bank Kenya Limited in due course,” reads part of a notice by KDIC, which was posted on the bank’s branch along Nairobi’s Kenyatta Avenue.
The CBK’s regulatory action was the culmination of years of poor corporate governance and deterioration of capital levels at the bank.
The lender had a total of 7,043 deposit accounts as of December, according to CBK’s 2014 banking supervision report.
Of these, 6,205 could be fully compensated since they held balances below Sh100,000, the maximum guaranteed by KDIC and which is payable in the form of dividends from the sale of a collapsed bank’s assets.
Cooking books
Potential interest accruing on the deposits shall be set by the CBK.
Dubai Bank had 838 account holders with more than Sh100,000 deposit balances, who are now set to lose the most from the bank’s failure.
This is because payments above Sh100,000 are not assured and is contingent on KDIC realising significant surpluses from the lender’s assets.
The CBK report showed that Dubai Bank has a net worth of Sh1 billion or 58.8 per cent of its total deposit liabilities. The regulator has accused the bank of cooking its books, making it difficult to ascertain its financial health.
KDIC will, therefore, be determining the bank’s financial position and ultimately the amounts payable to creditors and the high-net-worth depositors.
All types of accounts, including current, savings and fixed deposits, are covered up to the set limit.
For those holding multiple accounts in the same institution, the limit is still the same since all the accounts are consolidated and paid up to the maximum insured sum.
Corporate or joint accounts are, however, insured separately and protected as distinct deposits. Depositors are required to fill forms and lodge claims with the KDIC to be eligible for compensation.
The government is considering raising the maximum deposit from the current level that has remained unchanged since the KDIC started operations in 1989.
Risk-based premiums
The reforms will be accompanied by changing the contributions of banks and microfinance institutions from the current flat rate to one based on an institution’s risk profile.
Banks pay premiums to KDIC at the rate of 0.15 per cent of their average deposits in a year.
Changing this to premiums based on risk means unstable institutions will pay more to take and hold deposits compared with the more prudent rivals.
The collapse of Dubai Bank could see large banks take more deposits as customers shun smaller lenders perceived to have relatively weaker capital and corporate governance.
Large banks held Sh1.1 trillion or half the industry’s Sh2.2 trillion deposits in December, followed by medium-sized lenders (Sh953.5 billion) and small banks (Sh202.3 billion).
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