Central Bank of Kenya moves in to protect customers' deposits

By Bedah Mengo
The Central Bank of Kenya (CBK) is moving in to strengthen protection of deposits held in bank accounts, through establishment of deposit insurance fund.

   CBK has come up with draft regulations that will operationalize Kenya Deposit Insurance Act published last year, which was to fortify the current Deposit Protection Fund Board (DPFB).
   Key among the changes that the regulations will bring is the establishment of Kenya Deposit Insurance Corporation (KDIC), which will replace DPFB.
   "The purpose of these regulations is to promote deposit protection, instill public confidence, and foster financial stability. The regulations will establish and make Kenya Deposit Insurance Corporation operational," said CBK in a brief on May 27.
   Banks, which will become automatic members of KDIC, will be contributing monies to the institution's fund equivalent to a fixed rate of the average of their total deposits
   "An institution shall contribute a percentage, as directed by KDIC from time to time, but not less than 0.15 per cent of the average of its total deposit liabilities during the previous twelve months," said the regulator.
   The money deposited in KDIC's funds shall be invested in various assets and debt market that include treasury bills and treasury bonds denominated in local currency.
   According to CBK, deposits to be insured by KDIC, will include money held in current and savings accounts and fixed deposits and foreign currency deposits.
   "The institutions targeted are commercial banks, financial institutions and mortgage finance companies and deposit taking microfinance (DTM) institutions," said CBK, which is currently seeking stakeholders' views on the proposals.
   Kenya has recently witnessed increase in number of microfinance institutions that take customer deposits as CBK seeks to spread banking services across the East African nation.
   The regulations are thus timely since rise in number of DTM institutions and other financial institutions holding customer deposits come with risks.  There are 42 commercial banks and one mortgage finance company operating in the East African nation. One bank, Charterhouse, is currently under statutory management. The deposit insurance corporation, which will have a CEO and branches across Kenya, will work as the liquidator of an institution facing financial crisis.
   "When KDIC is appointed as a receiver of an institution, the Central Bank shall provide the corporation with details of the depositors that have payable liabilities. KDIC shall commence payment of insured deposits within 30 days from the date the corporation is appointed as liquidator," said the draft regulations.
   During the period under receivership, KDIC shall provide information to depositors related to the procedures to be followed to refund deposits.
   This move will be welcomed by many financial institutions' clients in Kenya. In the past, many of them have been left in the dark after a bank is placed under receivership, thus ending up losing their deposits.
   Under the new laws, banks will furnish KDIC on a monthly basis with information on total deposit liabilities, current and savings accounts deposits, foreign currency deposits, total number of depositors, total insured deposits and number of depositors fully covered.
   "Institutions shall maintain all pertinent information on a depositor in a 'single customer view 'form for purposes of ease of tracing and identification," said the draft regulations.
   The information will contain full names of depositor, contact details, including postal address, physical address and telephone number(s), all deposit accounts opened by the depositor and their identification (types of deposit and account numbers) and loan advance if any.
   Most banks in Kenya depend on customers' deposits for funding. The deposits from customers account for about 74 per cent of total funding liabilities of banks.
   As at end of March, customer deposits stood at 21.2 billion dollars, having grown from 20.9 billion dollars in December 2012.
   In 2012, commercial banks deposit base grew by 17.7 per cent, according to Central Bank. This was mainly supported by mobilization of deposits by banks, remittances and receipts from exports.
   However, while CBK monitors use of mobile money, the new regulations do not touch on the service, which move over 18 billion dollars annually. (Xinhua)