Raising of deposit insurance coverage is laudable

By David Wanjala

There was a huge sigh of relief when Kenya Deposit Insurance Corporation (KDIC) recently raised deposit insurance coverage from Sh100, 000 to Sh500, 000 in a bid to protect depositors while trying to entrench the culture of saving in financial institutions.

In the past, depositors have not been able to recover their deposits in half, leave alone in full, in an event a bank collapses. From 2015 to 2016 things were not that rosy. Chase Bank, Dubai Bank and Imperial Bank are good examples of how lenders can turn things inside out and back to front.

The lenders collapsed leaving a majority of creditors, depositors, and shareholders with huge losses. The issues were related to insider lending, lack of risk management strategies, weak regulatory systems, poor internal controls as well as weak corporate governance practices. Although there was a safety net thanks to KDIC, the amount was seemingly small and could not keep the bulk of the victims going. Handling the news that you can’t salvage 100% of your hard earned savings is traumatic.

It is against this predicament that the corporation has expanded coverage limit from Sh294 billion to Sh658 billion to institutions that insure with them. The new limits, an improvement to 20%, up from 8% that has been in place since 1989, extend to both commercial banks and licenced deposit-taking micro finance institutions. 

Good still, banks have been given a grace period of six months to pay up annual premiums, a move that will push the deadline to December 31 (2020) as opposed to the usual July – banks generally pay the premiums in an annual basis which fell due in July.

With the Covid-19 severely challenging businesses, and nobody seems to know the future, the latest move by KDIC might be the beginning of a new era. Some banks might be already suffering from restructuring. Businesses that were once successful and were the main source of their revenue are now at the verge of falling thanks to low numbers of customers with real purchasing power. 

The good thing is, there is a formal system in place that protects peoples’ deposits. More and more people will now have confidence in banking services thanks to the new amount that a single customer can get from a bank in case it gets liquidated.

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