Lenders to cover Ksh.500K after Chase Bank, Imperial, Dubai saga

Commercial banks will begin covering deposits for an estimated 98 percent of customers as from July next year.

This follows amendments of provisions in the Kenya Deposit Insurance Act of 2012.

“This is an incentive to our depositors to stop keeping money under mattresses or outside conventional banking,” Kenya Deposit Insurance Corporation CEO Mohamud A. Mohamud said.

Instead of the current Ksh.100,000 deposit coverage limit, customers will be cushioned for as much as Ksh.500,000.

The past four years have seen the unprecedented collapse of three lenders: Chase Bank, Imperial and the Dubai Bank.

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They came down under the weight of suspect dealings including unsecured insider loans.

Banks will now pay insurance premiums on customer deposits on a risk based model. Depositors will be covered in the event that their lender’s operations collapse.

Commercial banks will be also required to pay a greater premium to the KDIC based on the level of risks they take.

New premiums paid out by the banks will therefore comprise of the current rate of 0.4 percent of the average bank’s total deposit liabilities held within 12 months.

This will include a risk based rate to be determined by the corporation upon stakeholder engagement.

“The better you are at managing your risk the lower the premium you pay to KDIC for your deposit coverage,” Kenya Bankers Association CEO Habil Olaka said.

The National Treasury has since welcomed the shift in policy as it too seeks to safeguard interests of bank depositors and other industry players.

“Everyone needs to know that their earnings are well secured by the institutions that are mandated to do so,” Treasury CS Ukur Yatani said.

As of June this year, banks reportedly held an estimated total of Ksh.3.4 trillion in customer deposits.