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The Kenya Deposit Insurance Corporation (KDIC) is contemplating a revision of compensation limits for depositors impacted by bank collapses, proposing an increase to KES 500,000. The envisaged adjustment is anticipated to particularly benefit depositors with substantial account balances.
Tasked with the responsibility of safeguarding depositors’ funds in the event of bank failures, KDIC recently concluded the bidding process for a consultant aimed at reassessing the compensation limit. The primary objective is to bolster public trust in the banking sector and ensure its overall financial stability.
According to KDIC, the existing compensation limit of KES 500,000, set in 1989, acknowledges the erosion of real value in deposits over time. However, factors such as inflationary trends, industry dynamics, and the escalating size of deposits held by commercial banks necessitate a reevaluation of this threshold.
In its invitation to potential consultants for the review, KDIC stated, “The coverage limit was set at KES 100,000 in 1989 and reviewed to KES 500,000 in recognition of decline in real value over time to Kenyan depositors.”
While KDIC had previously expressed reservations about increasing the compensation limit, citing concerns regarding moral hazard and potential destabilization of the banking sector, the corporation has now adopted a different stance. The proposed adjustment reflects a commitment to adapt to evolving economic conditions and better safeguard depositors’ interests.
Presently, depositors impacted by bank failures are reimbursed up to KES 500,000, ensuring full reimbursement for balances up to this threshold. Amounts exceeding KES 500,000 are partially compensated, with the remaining balances settled as assets of the defunct bank are liquidated.
The consultant contracted by KDIC will conduct comprehensive research within the banking sector to evaluate the sufficiency and appropriateness of the coverage limit. The review process, expected to span two months, will also assess the breadth of deposit products offered by banks.
The proposed increase in the compensation limit underscores KDIC’s proactive approach to enhancing depositor protection and fortifying the resilience of the banking sector. As the review progresses, stakeholders eagerly await the outcome and its ramifications on depositor confidence and financial stability in Kenya.
