The Kenya Deposit Insurance Amendment Bill, 2020
The Kenya Deposit Insurance (Amendment) Bill 2020 seeks to amend the Kenya Deposit Insurance Act by increasing the deposit coverage limit under the Principal Act. It proposes to increase the maximum payable compensation limit to Kshs1,000,000/- as opposed to the provided Kshs100,000/- or KES 500,000/- (as recently amended) in the event a bank is under liquidation.
Further, the bill also proposes compensation per account instead of per depositor by deleting the provision allowing depositors that hold more than one bank account within a bank to claim a consolidated maximum compensation for all the accounts held by an individual in one bank. In addition, the bill seeks to introduce a penalty for non-compliance which is meant to compel a speedy payment by KDIC to depositors within a stipulated timeline once a claim is lodged. The proposed timeline is 6 months. Moreover, the proposed penalty would expose an individual to a fine not exceeding Ksh. 1,000,000/- or to imprisonment not exceeding a term not exceeding three (3) years or both.
| PROPOSED AMENDMENT | IMPACT | OUR COMMENTS | |
| Section 28 (1) of the KDI Act, 2012 | The Clause proposes to amend subsection (1) by deleting reference to a deposit coverage limit of Kshs 100,000 and replacing the same with a limit of Kshs 1 million.
Note: KDIC with the approval of the Treasury had previously reviewed the deposit coverage limit from Kshs 100,000 to Kshs 500,000 effective 1st July 2020. |
The allowable amount payable as protected deposit has been increased to Kshs 1 million or a higher amount set by the corporation, thereby taking into account the current economic realities.
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The new limit reduces the exposure of depositors to the risk of loss in the event their Bank is under liquidation, which is likely to boost the confidence of depositors and investors in banking institutions.
The amendment is also likely to spur a greater saving culture among Kenyans are likely to feel that their deposits are safer if the sum is insured up to a limit of Kshs 1,000,000/- for each account. Monies deposited in the bank are automatically insured and therefore all depositors deserve to enjoy the said protection and should get a refund of their deposited sums. |
| Section 28 (2) of the KDI Act, 2012 | The clause proposes to delete the current subsection (2) and substitute it with a new subsection (2).
Generally, the current subsection (2) provides that the deposit coverage would be per depositor and not per account.
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The deletion of the current subsection (2) means that a depositor with several accounts can get compensated for each account but within the allowable limit.
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The upshot of this intended amendment is that depositors may opt to open several accounts with an institution to minimise their risk of exposure.
If a depositor intends to deposit Kshs 10,000,000/- with an institution but wants to minimize their risk of exposure to zero, all the depositor has to do is to open 10 accounts with a maximum deposit of Kshs 1 million each. Although such an act is legal under the proposed amendment, it is unfair. Allowing compensation per account instead of per depositor also goes against internationally accepted best standards of deposit insurance.
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| Section 28 (2) of the KDI Act, 2012 | The amendment requires KDIC to pay a customer within six months of concluding liquidation of the insured institution.
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This amendment conflicts with Section 33(6) of the Kenya Deposit Insurance Act which requires KDIC to make payment to a depositor within 30 days after being appointed as a liquidator unless there are extraneous circumstances hindering it.
Further, it is contrary to a core principle under the International Association of Deposit Insurance, Principle 15, which requires that a depositor’s insured funds be reimbursed promptly with a view to contributing to financial stability. |
In reference to the six months period, it is too long a time and unfair on the part of the depositor to wait for six months to recover sums that were already insured before the collapse of the bank. The bill should prioritize prompt payment periods in the event of financial crises.
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| Section 28 (3) of the KDI Act, 2012 | The new subsection makes it a punishable offence to contravene the amended section 28. A person who commits the offence is liable to a fine not exceeding one million shillings or to imprisonment for a term not exceeding three years or to both. | the penalty is well thought of as this will ensure the banks are in strict compliance to avoid the fines and imprisonment and further this will act as a means of deterring the banks from exploiting monies deposited by the depositors to avert unnecessary penalties.
Introduction of this subsection would improve compliance with section 28 of the Kenya Deposit Insurance Act. |
The introduction of a penalty for non-compliance is meant to compel prompt payment by KDIC to depositors within the stipulated time once claims are lodged.
The persons tasked with ensuring section 28 is implemented are likely to opt for compliance as opposed to being sanctioned as per the proposed amendment. |
Recent Developments in respect of the Kenya Deposit Insurance Amendment Bill, 2020
The President however recently rejected to assent the said bill and cited the following reasons:
- The six (6) month timeline proposed to ensure speedy payment to depositors is inconsistent with the provisions of section 33 (6) of the Act. The said section 33 (6) provides that where the Corporation is obliged to commence payments in respect of any insured deposit, the Corporation shall, as soon as practically possible after the date of appointment as liquidator, make payment to the depositor of the institution based on the records of the institution and the opinion of the Corporation as regards entitlement to the amount claimed.
- Further the said provision is also inconsistent with the provisions of the International Association of Deposit Insurance’s core principles. Principle 15 allows for reimbursement plans and extended delays in reimbursements where corporations can make partial payments.
- Deleting and allowing for compensation per account instead of per depositor would also be against the International Association of Deposit Insurance’s core principles. The principles provide that a maximum amount payable for depositors is per depositor and not per account that a depositor holds within a bank.
- The proposed penalty for non- compliance is only aimed at individual offenders. The proposed amendment does not provide for potential sanctions to be faced by corporates bodies.
For the reasons mentioned above, the President, Mr. Uhuru Kenyatta declined to assent to the Kenya Deposit Insurance amendment bill, 2020 and asked parliament to reconsider amending it.
