SAFETY NET

Depositors with above Sh100,000 to access cash if bank collapses

Currently, such deposits are settled after the liquidation of banks' assets.

In Summary

• The move is expected to enhance stability in the financial markets especially on account of collapsed banking institutions due to liquidity and capital issues.

• Even so, about 97 per cent of bank accounts hold less than Sh100,000, making the majority of depositors affected when banks collapse.

Imperial Bank customer, 85-year-old Sarikas Ion carries a placard during a protests outside the Westlands branch in Nairobi, May 31, 2016./FILE
Imperial Bank customer, 85-year-old Sarikas Ion carries a placard during a protests outside the Westlands branch in Nairobi, May 31, 2016./FILE

Kenyans with cash in bank accounts of more than Sh100,000 would be able to access their deposits from July 2020 in the event a bank collapses.

The move comes after the Kenya Deposit Insurance Corporation (KDIC) increased the Revised Deposit Coverage Limit to Sh500,000 to protect depositors and also encourage saving in the institutions.

KDIC is mandated to protect the interest of depositors, creditors and the public on behalf of the Central Bank.

 
 

The incentive to depositors will lead to an increase from 8.2 per cent to 20 per cent of deposits recovered by KDIC.

The move is expected to enhance stability in the financial markets especially on account of collapsed banking institutions due to liquidity and capital issues.

Between 2015-2016, the banking sector has experienced turbulence leaving three banks among them Imperial Bank, Chase Bank and Dubai Bank under receivership.

The public assets will be fully covered in the unlikely event of a failure and account holders will access the money within 30 days,” KDIC chief executive Mohamud A Mohamud said.

Currently, deposits of more than Sh100,000 are settled after the liquidation of banks' assets leading to loss to shareholders.

Acting National Treasury Cabinet Secretary Ukur Yatanni said 98 per cent of deposits in banks will be fully covered, should any bank run south.

The depositor cash protection will be enabled by a risk-based premium rate determined by individual bank’s risk on liquidity and asset quality, corporate governance and amount of non-performing loans.

 
 

The higher the risk appetite, the higher the premium paid to KDIC hence, moving away from the current flat-rate premium rate.

The flat-rate model charges 0.15 per cent of the total deposits held.

Even so, about 97 per cent of bank accounts hold less than Sh100,000, making the majority of depositors affected when banks collapse.

The limit has been Sh100,000 since 1989.


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