The Kenya Deposit Insurance Corporation (KDIC) is intensifying scrutiny of financial institutions to avoid liquidity problems that could lead to collapse and lose to depositors.
KDIC CEO Mohamud Mohamud said the surveillance is meant to ensure Kenyans do not lose their deposits and to instill confidence in the financial sector. “We are working round the clock to ensure that financial institutions do not reach a point of no return and those that show signs of distress are supported in good time,” he said.
The move comes after several banks were put under receivership or wound up for being in the red line. They include Chase Bank, Dubai Bank and Imperial Bank.
One of KDIC’s role, which is an autonomous and independent state corporation, is to promote and contribute to the stability of the Kenyan financial system which he agreed has suffered a beating hence affecting the confidence Kenyans have in the sector.
As part of its strategy, the institution will in two years’ time change the premiums it charges to financial institutions from the current flat rate of 0.15 per cent of the deposits to a risk based premium model.
The CAMELS approach used by the Central Bank of Kenya will be the adopted mechanism as a start. CAMELS refer to Capital, Assets, Management, Earnings, Liquidity which include asset liability management and Sensitivity to market risks. These indicators used by CBK give a guideline on the stability of the institution. Once firmed up, they will develop ratios to determine what each institution pays so that those that are rated low (high risk) do not pay the same amount as those who are rated high (low risk).
However, the ratings will not be released to the public but only shared to the top management to prevent a possible bank run on an institution which receives a CAMELS rating downgrade. Mr. Mohamud was emphatic that no bank can survive a bank run for more than 12 hours, hence the need to keep the information within the banks management.
In addition, they hope to resolve any issues with financial institutions in 60 days.
“We want to be fixing banks when they are still in operations. Our approach moving forward is to reduce, avoid and when things go south, mitigate any closure”, the CEO added.