The deposit insurance fund, which covers customer deposits in banks, grew by 16.7 percent to Sh179.8 billion as of December last year, pointing to the enhanced protection of depositors.
The growth in the fund is attributable partly to rising bank deposits, which were up by 6.83 percent to Sh4.8 trillion from Sh4.5 trillion previously, prompting an increase in contributions to the insurance fund by member banks.
At the same time, the implementation of the risk-based premium assessment model saw the contribution by banks to the deposit insurance scheme increase.
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New disclosures by the Central Bank of Kenya (CBK) show the deposit insurance scheme run by the Kenya Deposit Insurance Corporation (KDIC) now has a coverage of Sh750 billion or 15 percent of the Sh4.8 trillion in customer deposits held in banks as of December 2022.
The extent to which the fund covers the insured deposits or the effective cover of the deposits increased by 10 percent in 2022 to 23 percent.
The CBK has attributed the raised cover of insured deposits to customers increasing transaction activities in their bank accounts and maintenance of low bank balances, resulting in a higher insured amount relative to deposit liabilities.
The deposit cover of 15 percent is nevertheless below the recommended minimum of 20 percent which is set as best practice by the International Association of Deposit Insurance.
“However, the 66.4 million bank accounts in December 2022, accounting for 99 percent of the number of accounts in the banking system which were fully covered,” the CBK noted.
KDIC implemented a differential premium system from July 1, 2021 replacing the previous flat-rate premium assessment regime.
A year prior, KDIC reviewed its deposit insurance coverage limit from Sh100,000 to Sh500,000 leading to a notable jump in insured customer deposits.
The implementation of the risk-based premium model served to decrease the fund’s risk exposure level from 78 percent in December 2021 to 76 percent in December 2022.
“The model rewards member banks for proactively investing in and implementing effective risk management frameworks. KDIC continues to implement appropriate resolution frameworks to ensure that in case of a failure of an institution, the process of resolution is effective and timely in collaboration with CBK and the National Treasury and Economic Planning,” the CBK added.
The deposit insurance system was established to protect depositors against the loss of their insured deposits in the event the bank was unable to meet its obligations to the depositors.
As of June 30, 2021, disclosures from KDIC show the membership of the deposit insurance scheme consisted of 39 commercial banks, 14 microfinance banks and one mortgage finance institution.
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During the period, KDIC maintained the levy premium to member institutions at the rate of 0.15 percent of the average total deposit liabilities held.
KDIC usually pays out protected deposits to customers once a bank has been placed in liquidation.
In the fiscal year to June 2021, CBK appointed KDIC as the liquidator of Chase Bank Limited and Charter House Bank Limited, increasing the total number of institutions in liquidation to 18 at the time. BY BUSINESS DAILY