FORWARD LOOKING

Early warnings to avert future bank failures - KDIC boss

In Summary
  • Imperial Bank and Chase Bank receiverships could have been prevented had failure symptoms detected and acted on swiftly
  • KDIC boss said the agency was working extra hours to source a suitable institution to take up IBl assets.
Kenya Deposit Insurance Corporation Chief Executive Officer Mohamud Mohamud gives an update on Chase Bank's receivership during a media briefing in Nairobi on January 12, 2018. /ENOS TECHE
Kenya Deposit Insurance Corporation Chief Executive Officer Mohamud Mohamud gives an update on Chase Bank's receivership during a media briefing in Nairobi on January 12, 2018. /ENOS TECHE

Kenya Deposit Insurance Corporation (KDIC) is counting on effective information sharing mechanisms, early warning tools, and offline surveillance to avert any bank failure going forward.

In an interview with the Star Newspaper, the depositors’ body chief executive Mohamud Mohamud said Imperial Bank and Chase Bank receiverships could have been prevented had failure symptoms detected and acted on swiftly.

“We shall be doing surveillance in banks together with CBK in order to fix any problem before it becomes terminal. Previously, we used to come in only when the bank has collapsed,’’ Mohamud said.

 

He asked depositors whose funds are still held at different stages of liquidation to continue exercising patience as the Corporation work with other relevant agencies in the recovery process.

His promise is coming at the time the agency is on the spot over the slow liquidation process of the defunct Imperial Bank Limited, which was placed under receivership in 2015 following a systematic internal fraud where Sh34 billion was siphoned.

Although KCB Group made a final offer for troubled in April; it trimmed payout to deposits held in Receivership by Sh6.5 billion four months later, following the disclosure report that revealed the deterioration of IBLR net assets.

 Imperial Bank Depositors Lobby chairman Mahmood Khambiye last month told the Star that KDIC is keeping depositors in the dark, only reading details of offers granted in press.

Even so, KDIC boss said the agency was working extra hours to source a suitable institution to take up IBl assets.

'' Moving forward and to minimize such experience, the Corporation is working with CBK to undertake its mandate of early detection and intervention in resolving troubled banks with the required zeal,’’ Mohamud said.

Last year, KDIC with the approval of the National Treasury has reviewed the deposit coverage limit which I have the pleasure to launch today, from Sh100, 000 to Sh500,000 effective July 2020 making it amongst the highest in Africa.

 

This will see up to 98 per cent accounts of depositors fully covered, further raising the value of the amount covered from the current 8.2 per cent to 20 per cent in line with international best practice.

It also announced the revision of the flat-rate premium model to risk-based premium model for the banking sector, a move expected to instill market discipline and safeguard bank depositors.

Currently, banks are charged a premium of 0.15 per cent as premium on the average total deposits for the last 12 months preceding the start of a financial year or Sh300,000 whichever is higher.

“We will implement the risk-based formula in underwriting the deposits held by banks starting July,” KDIC boss said.

He termed the current flat-rate premiums as a moral hazard, hence the need to punish lenders with higher risk and reward prudent bankers with cheaper insurance premiums.

KDIC has liquidated 25 banks, concluding compensation for eight banks. Another 17 are at different stages of the compensation process, including Chase, Imperial and Trust banks.