The Kenya Deposit Insurance Corporation (KDIC) is seeking expertise to establish a framework requiring commercial banks to detail how their assets will be distributed and liabilities settled in the case of failure in their business.
The resolution plan framework which borrows heavily from other markets such as the US, is described as a bank living will and gives a step-by-step process on how each bank will ensure the continuity of its business or resolution in the event of shocks.
This plan requires the setting up of structures by commercial bank boards and management.
“The corporation seeks to develop and implement a resolution framework which will facilitate the documentation of an individual member institution’s ‘living will’,” KDIC notes.
“This refers to the intent of the institution’s shareholders, board and management in regard to the institution’s resolution options, in the event that the bank runs into challenges that threatens its ability to continue operations.”
KDIC subscribes to core principles for effective deposit insurance systems as a member of the International Association of Deposit Insurers (IADI).
IADI defines a resolution plan as a map intended to facilitate the effective use of powers by a resolution authority, with the aim of making the fixing of financial institutions feasible without severe systemic disruption and exposure of taxpayers.
The experts sought by KDIC will be required to develop resolution planning guidelines, templates and outlines. The consultant will also be tasked with the development of material for stakeholder engagements and data management for resolution plans submitted by banks.
KDIC currently deploys its deposit fund to protect bank depositors, paying out Sh500,000 per person upon a bank failure.
The fund previously insured deposits up to Sh100,000 per person but has been pushing to raise the coverage beyond current limits having engaged Zamara Consulting to review the present threshold. KDIC held Sh209.2 billion in the deposit insurance fund (DIF) as of December 2023.
The fund has covered 99 percent of all banks’ accounts in case of failure, with the number of fully protected accounts standing at 106.2 million against a total of 107 million.
As of June 2023, the KDIC was overseeing the liquidation of 19 institutions including Charterhouse Bank Limited, Imperial Bank, Daima Bank, Dubai Bank and Chase Bank Limited.
The depository has meanwhile overseen the winding up of nine banks over the years including Trade Finance Limited, Allied Credit and Fortune Finance.
Bank collapses in Kenya have been rare and far between with the last crisis being the back-to-back failure of Chase Bank, Dubai Bank and Imperial Bank in 2015 and 2016.
The Central Bank of Kenya (CBK) has currently licensed 38 commercial banks which held Sh5.8 trillion in customer deposits as of December 2023 out of which Sh857.8 billion was insured in the event of a bank failure.
