Kenya has spared small and weaker banks from paying increased premiums to the deposit insurance fund for one year amid Covid-19 pandemic that has adversely affected the cash flow positions of both regional and global lenders.
As part of measures to support the economy and the banking industry during this difficult period caused by Covid-19 impact, the Kenya Deposit Insurance Corporation (KDIC) has suspended the implementation of the risk-based premium model by one year and gave banks a six-month grace period to pay their annual premiums.
“The future is to ensure no bank failures in Kenya and in the unlikely event of a problem bank, prompt resolution methods shall be employed with the least disruption to depositors and the banking sector at large,” Chief Executive Mohamud Ahmed Mohamud told reporters in Nairobi Tuesday.
KDIC has also enforced the revised deposit insurance coverage limit of Ksh500, 000($5,000) from Ksh100, 000 ($1,000), effective July 1, whose implementation had been deferred last year.
The deposit insurance fund, run by KDIC, was created to compensate depositors of collapsed institutions and to boost confidence in the banking industry that had been rocked a by a series of bank failures in the 1980s and early 1990s.
Currently, the fund is financed by member banks at a flat rate of 0.15 per cent of the total deposits per annum.
However, KDIC in collaboration with Central Bank of Kenya and the National Treasury agreed on a new payment model based on the risk-profiles of individual banks.
This means that high risk lenders—in terms of their liquidity positions, capital adequacy, asset quality and governance structures—would pay higher premium to the fund compared with their relatively stable counterparts.
The one-year delay aims to give banks impacted by Covid-19 a breathing space to put their books in order.
“This will allow member institutions to recover post Covid-19,” added Mohamud.
Kenyan lenders are required to pay the annual deposit insurance premiums in the month of July every year but with the extended deadline the payments will now be due on December 31 2020.