Kenya to shield more deposits amid threats on banking
Friday June 16 2023
National Treasury Cabinet Secretary Prof Njuguna Ndung’u address a presser after presenting the Budget at parliament buildings in Nairobi, Kenya on June 15,2023. PHOTO | SILA KIPLAGAT | NMG
Kenya says it will raise the amount of bank deposits eligible for insurance protection as authorities seek to cover more savers from potential global disruptions in banking.
And the Kenya Deposit Insurance Corporation (KDIC) says it is reviewing the insured deposit coverage limit of Ksh500,000 ($3,597.12) to be in line with ongoing realities on banking threats.
Read: KDIC rolls out banks’ risk-based premium model
Kenya’s National Treasury Cabinet Secretary Njuguna Ndung’u said the financial stability risks have increased rapidly as the resilience of the global financial system has been tested by high inflation and rising interest rates.
Mr Ndung’u while presenting the first budget for the Kenya Kwanza administration for the 2023/2024 fiscal year, said on Thursday that the revision of the deposit coverage limit seeks to ensure protection of the Micro, Small and Medium Enterprises (MSMEs).
“In order to enhance protection of depositors, the KDIC is in the process of reviewing the current coverage limit of Ksh500,000 with a view to ascertain its adequacy in protecting the MSMEs,” said Ndung’u.
Kenya increased the insured deposit coverage limit to Ksh500,000 from Ksh100,000 ($719.42) effective July 1, 2020, to instil confidence in the banking sector after three banks— Dubai bank, Imperial Bank and Chase bank —collapsed in quick succession 2015 and 2016 with an estimated Ksh100 billion ($719.42 million) in customer deposits.
The deposit insurance fund which is run by KDIC was created to compensate depositors of collapsed institutions and to boost confidence in the banking industry that had been rocked a by a series of bank failures in the 1980s and early 1990s.
Kenya’s new Insolvency Act compels regulators to ensure revival of institutions, with liquidation being a last resort.
Read: Govts to cushion depositors against collapsed banks
Last year (2022) the banking sector gross non-performing loans (NPLs) stood at 13.3 percent in December 2022, a decline from 14.7 percent in June 2022
“The need to build resilience and to exploit emerging opportunities has led to increased consolidation as well as regional expansion through acquisitions,” said Ndung’u.
“This has led to strong institutions supporting the stability of the banking sector. The sector is therefore expected to remain sound and stable in 2023 building on the reform initiatives and buffers built over the recent years.”
KIDC has also developed an Alternative Dispute Resolution (ADR) framework to address disputes between financial institutions that have been closed and their respective stakeholders thereby fast-tracking release of available resources and winding up those banks under liquidation.