Customers at a banking hall in Nairobi. FILE PHOTO | NMG
The move by the Kenya Deposit Insurance Corporation (KDIC) to
increase compensation for depositors in collapsed banks from Sh100,000
to Sh500,000 is commendable. For sure, the increase
was long overdue considering that the limit was set three decades ago and the low compensation exposed wealthy depositors to heavy losses in the event of bank closures.
was long overdue considering that the limit was set three decades ago and the low compensation exposed wealthy depositors to heavy losses in the event of bank closures.
Though it is a big step in cushioning
savers, government agencies should work to strengthen the banking system
to prevent banks from collapsing as was the case in 2015 and 2016.
KDIC
chief executive Mohamud Ahmed said already they are working on a
mechanism with CBK to identify struggling banks early for turnaround
efforts before they collapse.
Depositors and investors
in Kenya were rattled three years ago when the central bank took control
of three mid-sized lenders; Chase Bank, Imperial Bank and Dubai Bank.
Imperial
Bank went under while holding an estimated Sh88 billion in deposit
while Chase Bank had Sh95 billion of public savings but later reopened.
Dubai Bank also collapsed during the period.
The banking sector is critical to the economy, therefore the
agencies tasked with monitoring it should weed out illegal actions that
pose risks to it.
As such, strengthening the
institutions as well as their oversight is more attractive to customers
than compensating them after the fact. This is the first option at all
times.
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