Capital Markets

Value of insured bank deposits hits Sh819bn after law changes


A customer is served at the Kenya Commercial Bank (KCB) in Nairobi on January 24, 2018. PHOTO | SIMON MAINA | AFP

The value of insured bank deposits rose by 16.5 percent to Sh819.17 billion last year on the back of an increase in accounts holding more than Sh100,000 and a change in the law that increased compensation for collapsed lenders.

The 2021 annual bank supervision report by the Central Bank of Kenya (CBK) shows the value of insured deposits now accounts for 21.2 percent of total deposits, an increase from the 17.3 percent or Sh702.9 billion worth of deposits that were protected in 2020.

Accounts holding more than Sh100,000 rose by 4.2 percent to 1.65 million last year, while compensation to depositors in collapsed banks was raised to Sh500,000 from Sh100,000.

“This can be attributed partly to the increase of accounts with Sh100,000, which will be a subset of the bigger portion of up to Sh500,000 and also the change in minimum compensation amounts that was introduced in 2020,” said Standard Chartered Bank Kenya chief executive Kariuki Ngari.

The share of quality bank accounts also matches the earnings power of the workers in the formal sectors.

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Workers earning more than Sh100,000 accounted for 2.9 percent of the 2.7 million formal workers captured in the Kenya Revenue Authority database in 2020.

Kenya reviewed the law and increased compensation to depositors in collapsed banks to protect wealthy investors who had for years been exposed to wide losses in case of a bank collapse.

The Sh100,000 compensation per depositor that had been in place since 1989 did not consider changing economic realities over the three decades, including growth of the economy and inflationary changes in the value of money.

Banks also started paying up to 33.3 percent more to insure customer deposits in changes aimed at strengthening the financial position of the lenders to avoid collapse.

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Kenya Deposit Insurance Corporation announced the start of a risk-based premium model in July last year with insurance cover for deposits varying depending on each lender’s risk profile.

Lenders and microfinance banks pay between 0.15 percent and 0.2 percent of their annual average deposits as premiums.

This marked a departure from the 0.15 percent flat rate or Sh300,000 — whichever is higher — that the lenders had been submitting to the KDIC.

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