Capital Markets

High-risk banks start paying higher premiums from July

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Central Bank of Kenya. FILE PHOTO | NMG

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Summary

  • The KDIC, in collaboration with Central Bank of Kenya and the Treasury, agreed on a new payment model based on the risk-profiles of individual banks.
  • Kenyan lenders are required to pay the annual deposit insurance premiums in July of every year, but with the extended deadline, the payments will now be due on December 31, 2021.

Banks with higher risks exposures will start paying increased premiums to the Kenya Deposit Insurance Corporation (KDIC) starting July 1 following the expiry of the one-year suspension due to the economic knocks of the Covid-19 pandemic.

Chief executive Mohamud Ahmed Mohamud told the Business Daily last week that banks with lower risk appetite will, however, pay lower premiums.

This means that high-risk lenders — in terms of their liquidity positions, capital adequacy, asset quality and governance structures — would pay a higher premium to the fund and vice versa. The one-year delay in premium payment was aimed at giving banks impacted by Covid-19 breathing space to put their books in order.

The KDIC, in collaboration with Central Bank of Kenya and the Treasury, agreed on a new payment model based on the risk-profiles of individual banks.

“Premium deposit payment taking effect on July 1 will be based on the risk appetite of a bank. If let’s say if the perceived risk of a bank is high, they will pay a higher premium and vice versa,” said Mr Mohamud.

He also said the deposit insurance fund would also start charging banks annual premium following a six-month grace period due to the effect of Covid-19 pandemic.

Kenyan lenders are required to pay the annual deposit insurance premiums in July of every year, but with the extended deadline, the payments will now be due on December 31, 2021.

“The new charges taking effect this year comes at a time Kenyan banks have witnessed increased deposits. This shows the strong vote of confidence that depositors have in our banks. I call upon banks to make sure depositors do not lose their money,” he said.

The deposit insurance fund, run by the KDIC, was created to compensate depositors of collapsed institutions and to boost confidence in the banking industry that had been rocked a by a series of bank failures in the 1980s and early 1990s.

Currently, the fund is financed by member banks at a flat rate of 0.15 per cent of the total deposits per annum.