Kenya to review deposit insurance scheme

By Ronald Njoroge

Kenya is in the process of reviewing its bank deposit insurance scheme in order to enhance the stability of its financial sector, a government official said on Thursday.

Deposit Protection Fund Board (DPFD) Director Jonathan Bett told journalists in Nairobi that the review will be done through the operationalization of the Kenya Deposit Insurance Act of 2012.
"We have already subjected the regulations to public participation and so they will be forwarded to Attorney General for drafting and thereafter to parliament for endorsement," Bett said during the International Association of Deposit Insurers workshop.
The two-day event brought participants from 50 countries to review ways of developing effective deposit insurance systems. Bett said that the aim of the reforms is to provide an effective financial system safety net.
"We are considering increasing the amount covered from the current 1,150 U.S. dollars," Bett said. Typical when bank’s collapse, Central Bank of Kenya appoints a board to liquidate its assets.
"This ensures that there is minimal disruption of the economy," he said. Central Bank of Kenya Assistant Director Jane Ikunyua said that financial stability should be treated as a public good.

She added that the country’s deposit fund is moving away from the narrow mandate of only reimbursing insured deposits.
"The deposit insurer will soon engage in risk minimization functions as well prudential oversight responsibilities," she said.
Ikunyua said that there is limited knowledge of deposit insurance in the country.

Kenya’s last bank failure occurred in 2005.
"We have since compensated all deposits that were insured," she said. Kenya’s Deposit Protection Fund Board has 500 million dollars.
International Association of Deposit Insurers (IADI) President Jerzy Pruski said that the 2008 global financial crisis indicated the need for robust deposit insurance schemes.

He noted that Africa’s low integration into the global economy insulated the continent from the global crisis. "However, the continent’s rising economic fortunes, necessitates the need for effective deposit schemes," Pruski said.
"Unfortunately, formal insurance systems are yet to take root in many countries," he said. A number of African countries are in the processing of developing insurance schemes.
There are currently 75 countries that are members of the IADI, out of which five are from Africa. "We promote strong deposit insurance systems by providing technical assistance as well as training," Pruski said.

Kenya School of Monetary Studies Director Professor Kinandu Muragu said that effective deposit insurance minimizes the likelihood of bank runs.
"They also need to safeguard the rule that the banking industry pays from its own pocket for the troubles they have incurred," he said.
According to Muragu, the operational environment of a particular country needs to be taken into account when designing a structure for the insurance scheme.
"This will ensure that the benefits of the existence of the insurance, exceeds its maintenance costs," he said. Muragu noted that the establishment and broadening of their mandates are often triggered by a crisis.
IADI Africa Region Committee Chairman John Chikaru said that future global economic growth will be fueled by Africa.
"The continent therefore needs to implement insurance deposit schemes that will focus on retail clients," Chikaru said.
In 2012, IADI signed an agreement to collaborate with International Monetary Fund and the World Bank. "This has enabled the multilateral banks to conduct financial sector assessments on a number of countries," the chairman said.
"This will also assist to improve compliance with internationally agreed principles," he said.
Chikaru, who is also CEO of Zimbabwe Protection Board, said that there is need for cross border deposit insurance due to the number of transnational banks. "This is will also help in regional integration efforts," he said.

Source Xinhua