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KDIC plans to charge banks premiums based on risk

KDIC is a statutory institution linked to CBK and was established under the Kenya Deposit Insurance Act, 2012 whose mandate is to provide a deposit insurance scheme for customers

NAIROBI, Kenya, May 9 – Kenya Deposit Insurance Corporation (KDIC) has announced plans to review the current flat rate premium model on Bank’s deposits to risk-based premium model in a move that is expected to instill market discipline and safeguard bank depositors.

The flat rate premium model is where banks give KCID 0.15 percent of total deposits to caution depositors in case the bank falls

The introduction of the new model will see the scrapping of the current rate of 0.15 percent of total deposits held and in its place introduce a system where premium charged will be based on an individual bank’s risk appetite.

KDIC Chief Executive Mohamud Ahmed Mohamud said the review of the premium rate is in line with global best practice and will provide an incentive for sound Risk management by reducing the premiums charged to banks with better risk profiles while increasing premiums for those with a high-risk appetite.

“One of the challenges we have faced in the past is the situation where all banks have been treated the same in terms of the premiums they pay to KDIC. We are now looking at instituting a risk-based premium model which we believe is fairer and will encourage banks to streamline their operations in order to minimize their risk exposure,” said Mohamud.

The move comes even as three banks were put under receivership in the last three years that include Dubai Bank, Imperial Bank as well Chase Bank.

Chase Bank has however since found a suitor and Kenya Commercial Bank who were managing it have handed it over to SBM Kenya, a subsidiary of SBM Holdings.

Imperial Bank is yet to find a viable suitor.

“We are cognizant of the fact that banking stability is largely founded on public confidence and that this stability is crucial in maintaining a vibrant economy. We continue to put more effort in driving awareness of KDIC‘s role in maintaining and fostering soundness and stability of the financial sector and with the review of the bank insurance premiums, we are confident that we are on the right track in achieving these goals”, said KDIC’s Board Director James Teko.

KDIC is also currently in the process of developing an ICT based Central data surveillance monitoring system-to enable profiling of member institutions.

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