Johnson Sakaja proposes to increase depositors refunds of collapsed banks

Nominated MP Johnson Sakaja has proposed to amend to the Kenya Deposit Insurance Act (2012) to ensure customers of collapsed banks can be given more than sh100, 000 set in the Act when the banks are in financial turmoil.

His amendment seeks to increase the protection limit from the maximum of sh100,000 set in 1985 to sh2 million to better protect limit to which depositors are entitled.

Fund management function in the Kenya Deposit Insurance Corporation (KDIC) is to grow KDIC funds with the overall objective of creating a pool of funds sufficient enough to cover exposure arising from member institution failure. It also aiMs to balance the functions of growing the funds while ensuring that KDIC is liquid enough at any given point to meet their obligations.

The memorandum of the Kenya Deposit Insurance (Amendment) Bill, 2016 explain that

as currently set, the maximum amount of one hundred thousand shillings does not offer fair compensation to a significant portion of depositors, especially young people and small and medium-sized enterprises who are likely top be the victims of banking collapse.

The MP further wants that the principle Act amended to ensure each account held by a depositor is covered by the insurance.

“Where a depositor owns more than one deposit account with an institution, each of the accounts shall be insured to the prevailing maximum fixed under subsection (1).”

This amendment will be to section 28 of the Kenya Deposit Insurance Act.

The proposed Bill dated 12th April 2016 says that where a depositor has more than one account, all their deposits are aggregated and insured as one.

This comes at a time when Dubai Bank, Imperial Bank and Chase Bank have been put under receivership in the past two years, raising concerns over integrity in Kenya’s banking sector.

The KDIC which is the institution that the Act stipulates has four main functions. They are to provide a deposit insurance scheme for customers of member institutions; 2. to hold, manage and apply funds levied as contributions from member institutions; 3. wind up operations of insolvent institutions in respect of which the Board is appointed as the liquidator; and 4. to work in close collaboration with CBK, conduct bank surveillance and where warranted engage in problem bank resolution.

There are 42 banks, nine micro-finance institutions and one non-financial institution – Housing Finance who are members of KDIC. All member institutions pay flat-rate contributions based on the level of deposits taken by the institution in the previous twelve months.

Currently, the annual premium is assessed at 0.15 percent of the average total deposit liabilities or sh300,000 [US$ 4,000] per member, whichever is higher. It is applied uniformly and assessments are carried out in July and premium payments are expected by August of each year. Late payments attract penalties. At the moment, the law limits premiums to a maximum of 0.4 per cent of the average of a members total deposit liabilities in a twelve month period prior to assessment.

As at June 2015, the fund balance was sh54.9 billion. In 2015, their income was sh8 billion.

The Bill has been sent to the government printer for publication before being tabled in the National Assembly.


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