Kenya Deposit Insurance Corporation (KDIC) has issued Banks considered high risk.
KDIC noted that the said banks will be required to pay higher premiums to the to avert bank failures
The corporation’s chief executive officer Mohamud Mohamud told the Star that KDIC is planning to introduce risk based premiums as it moves from being a liquidator to a risk minimiser.
”We will no longer be mere liquidators. In our role as risk minimisers, we work with CBK to survey bank portfolios, examine their strength and ensure depositors and creditors get quick compensation in case of failure,” Mohamud said.
Currently banks are charged a flat premium of 0.15 per cent of total deposits for 12 months preceding the start of the financial year, or Sh300,000 whichever is higher.
He blamed bank failures on poor corporate governance, saying risk-based premiums will reward best practices and shield depositors by setting higher compensation.
‘’We are now looking at instituting a risk-based premium model which we believe is fairer and will encourage banks to streamline their operations in order to minimise their risk exposure,’’ Mohamud said.
The decision to adopt risk-based premiums was arrived at during inaugural stakeholder forum held in May last year.
During the event, Treasury Chief Administrative Secretary Nelson Gaichuhie spoke of government’s commitment to safeguarding depositors’ funds by exploring viable and forward-looking risk mitigation.
“We believe that well-designed safety nets could do more than just stabilise the financial system. They could also reduce the burdens placed on regulators,’’ Gaichuhie said.
The proposed measure are in response to the banking crisis that befell the country in between October 2015 and April 2016 when Imperial Bank and Chase Bank were put under receivership on fraud allegations.
In October 2015, the regulator placed Imperial Bank under receivership after the discovery of a fraud that went on for 13 uninterrupted years.
It emerged that the lender was operating two sets of books, with a potential fraud of $449 million (Sh46 billion) that placed depositor cash at risk.
Shareholders were accused of irregularly paying themselves $27 million (Sh2.7 billion) as dividends when the bank was not making any profit and a further $20 million (Sh2 billion) claimed from the directors for recklessly lending to firms.
Kenya Commercial Bank bid to take over the bank was accepted in December by KDIC and CBK.
Six months later on April 7, 2016, Chase Bank followed after an internal loan fraud of Sh14.9 billion was discovered.
Mauritius based lender SBM has since taken over with 75 per cent of the Sh76 billion held in restricted accounts.
Depositors started gaining access to the Sh76 billion from January 1, 2018 in three instalments that will run up to 2021.
There is however uncertainty over the remaining 25 percent translating to Sh19 billion with both CBK and KDIC not detailing how it plans to recover the amount.
The banking regulator has since come up with several security policies including setting regulations on transaction limits to prevent future trouble.
Once a bank is put under receivership, KDIC pays a guaranteed Sh100,000 to depositors. The rest is paid through dividends as it liquidates bank assets.
Mohamud said about 97 per cent of Kenyan accounts contain less than Sh100,000, hence, most depositors are safe.
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.
The agency has recovered 19.4 per cent of more than Sh40 billion since establishment of the Deposit Protection Fund Board in 1987.