Capital Markets

Banks insured deposits double to Sh710 billion


A customer being served at a bank branch in Nairobi. FILE PHOTO | NMG

Insured bank deposits more than doubled to Sh710 billion in 12 months to June 2021 from Sh305 billion a year earlier after the Kenya Deposit Insurance Corporation (KDIC) raised the deposit coverage limit to Sh500,000 from Sh100,000.

According to KDIC’s latest annual report, the higher insured deposits translate to a protected value of 16 percent of the entire banking industry’s deposits from eight percent previously.

The improved deposit coverage has seen the full protection of 65 million accounts out of 66 million accounts in the banking system, which represents an account coverage ratio of 99 percent.

The deposit coverage limit was raised to Sh500,000 per account in July 2020 following amendments to the KDIC Act, which were to offer enhanced protection to banking depositors.

Read: KDIC steps up bank surveillance with new data system

During the period, banks raised their premium contributions towards covering the customer deposits to Sh5.6 billion from Sh5.2 billion in 2020 on the back of increased deposits.

“The banking sector remained stable and resilient, due to the gradual economic recovery from the effects of the Covid-19 pandemic. The deposit liability within the banking system increased by eight percent in June 2021, to stand at Sh4.37 trillion from Sh4 trillion in June 2020,” said KDIC.

The corporation, which draws its membership from 39 commercial banks, 14 microfinance banks and one mortgage finance institution saw the size of the fund grow to Sh140.24 billion from Sh122.42 billion previously as the sector’s outstanding deposits hit Sh4.37 trillion.

Deposit insurance is a system established to protect depositors against the loss of their deposits in the event a bank is unable to meet its obligations.

KDIC provides deposit insurance to customers of member institutions ensuring such clients are covered in the case of a bank collapse.

During the period, KDIC continued to levy premiums to member institutions at the rate of 0.15 percent of the average total deposit liabilities held.

The fund remains primarily invested in government securities with the fair value of the assets comprising Treasury bills and Treasury bonds standing at Sh140.189 billion as of June 2021.

KDIC holds Sh943.8 million in cash and bank balances. During the year to June 2021, KDIC earned Sh14.2 billion in investment income compared to Sh12.4 billion a year prior with the growth being attributed to an improved return on investment through prudent investment in government securities.

KDIC earns other income from penalty charges on late contributions to member institutions and grants income.

Read: Chase Bank depositors get Sh730m payout

At the end of the financial year to June 2021, KDIC began the implementation of the risk-based premium assessment model after the end of stakeholder engagements and simulations.

Implementation of the risk-based assessment is projected to increase banks’ premium contributions to the fund matching the upward revision to the deposit coverage limit.

[email protected]