Uhuru rejects Bill on Sh1m refund in collapsed banks


Chase Bank customers mill around the closed bank along Mama Ngina Street in Nairobi on April 7, 2016. PHOTO | EVANS HABIL | NMG

President Uhuru Kenyatta has rejected a Bill that would have seen depositors in collapsed banks paid up to Sh1 million because of a six-month cap to refund the compensation.

Mr Kenyatta has fired a memorandum to Parliament asking MPs to delete a section introducing a new provision to the Kenya Deposit Insurance Act to prescribe six months as the waiting period for payment of compensation to a customer in respect of protected deposits.

Mr Kenyatta, however, did not reject a proposal in the Bill that seeks to increase the compensation from the current cap of Sh500,000 to Sh1 million.

The proposal to double the compensation came months after it was increased to Sh500,000 from Sh100,000 — the first time in three decades.

In the memo tabled in Parliament on Thursday, Mr Kenyatta rejected a proposal to cap six months as the waiting period for payment of compensation to a customer in respect of a protected deposit.

He wants MPs to delete the proposal to amend section 28 of the KIDC Act that introduced the new provision prescribing the caps.

“The President notes that the proposed new subsection is inconsistent with section 33(6) of the Act,” the memorandum states.

The Act requires that where the KDIC is obliged to commence payment in respect of any insured deposits, the corporation shall within 30 days after the appointed liquidator make payment based on the records of the institution and the opinion of the corporation as regards entitlements of the amount claimed.

The Head of state also rejected the caps saying it conflicts with the International Association of Deposit Insurance’s core principles for an effective deposit insurance system.

He said paragraph 15 of the International Association of Deposit Insurance provides that the deposit insurance system should reimburse depositor’s insured funds promptly, in order to contribute to financial stability.

The paragraph also dictates that there should be a clear and unequivocal trigger for insured depositor reimbursement.

He also wants MPs to amend the Sh1 million fine or three-year jail term as this new provision fails to provide for offences committed by corporate persons.

“The President, therefore, recommends that the proposed subsection be amended to include sanctions for offences committed by body corporates,” the memo reads.

It will take 233 MPs or a two-thirds majority of the House to overturn the President memo.

The KDIC — an independent agency that manages the deposit refund in collapsed banks — had opposed the Bill, saying that if passed it would increase its exposure to Sh950 billion against the current fund of Sh130 billion.

The agency added that changing the law to allow for compensation per account instead of per depositor would be against the internationally accepted best standards of deposit insurance.

The increase to Sh500,000 made in July last year came at a time low compensation had exposed savers to higher losses in the event of bank closures because the refund was not adjusted to take into account changing economic realities over the three decades.

In 2015 and 2016, Dubai Bank, Chase Bank and Imperial Bank were placed under receivership, fueling jitters among investors.

Dubai Bank is facing liquidation while Chase Bank and Imperial Bank had their good loans and deposits transferred to State Bank of Mauritius and KCB Group respectively.

The revised cap of Sh500,000 covers about 20 percent of all bank deposits from the previous eight percent.

The KDIC is funded by charging commercial banks a small percentage of their deposits in the form of insurance.

KDIC determines each contribution through the Risk Based Premium Assessment Model.

The assessments are conducted in July and premium payments are expected by August of each year.

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