Deposit insurer to adopt risk-based system in 2020

KDIC chief executive Mohamud Ahmed Mohamud . FILE PHOTO | NMG 

By BRIAN NGUGI

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Summary

• The Kenya Deposit Insurance Corporation (KDIC) on Wednesday said the two-year period will allow banks to realign business strategies to the new model.
• Banks and deposit-taking micro-financiers currently pay premium assessed at 0.15 per cent of total deposits held, regardless of risk exposure and risk-management strategies.
• KDIC argues that the current flat-rate premiums is a moral hazard, hence the need to punish lenders with higher risk and reward prudent bankers with cheaper insurance premiums.

Statutory deposit underwriter says it will implement a framework to charge lenders risk-based premiums in two years.

The Kenya Deposit Insurance Corporation (KDIC) on Wednesday said the two-year period will allow banks to realign business strategies to the new model.

Banks and deposit-taking micro-financiers currently pay premium assessed at 0.15 per cent of total deposits held, regardless of risk exposure and risk-management strategies.

“We will implement the risk-based formula in underwriting the deposits held by banks in 2020,” the agency’s chief executive officer Mohamud Ahmed Mohamud said during a meeting with banking stakeholders in Nairobi.

KDIC argues that the current flat-rate premiums is a moral hazard, hence the need to punish lenders with higher risk and reward prudent bankers with cheaper insurance premiums.

It was originally expected the regulation would come into force earlier following concerns from savers after collapse of Chase, Imperial and Dubai banks in 2016.

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The formula would take into consideration the amounts of deposits held by a bank coupled with a risk assessment criteria based on laid down benchmarks of operations as outlined by the Central Bank of Kenya (CBK) also known as CAMELS.