In a bid to enhance efficiency, proposed amendments to the Kenya Deposit Insurance Act (KDIA) aim to speed up the payout process for depositors of collapsed banks.

Under current regulations, depositors have to wait for up to six months after liquidation before they can access their insured funds.

The new changes seek to eliminate the payout timeline, enabling immediate compensation to account holders once a bank is liquidated.

Treasury Cabinet Secretary John Mbadi addressed these proposed amendments in the Kenya Deposit Insurance Amendment Bill 2024.

“The Kenya Deposit Insurance Act is amended in Section 28 by deleting sub-section (2),” Mbadi stated, emphasizing that the move aligns with the International Association of Deposit Insurers' core principles, which prioritize timely reimbursement to depositors.

This change aims to bolster financial stability by ensuring that insured funds are quickly accessible following a bank's collapse.

The Kenya Deposit Insurance Corporation (KDIC), which insures deposits up to Sh500,000, has been tasked with ensuring quick payouts.

Currently, KDIC is obligated to complete payouts within six months of a bank’s liquidation.

As of December 2023, 99 percent of all bank accounts are covered by the corporation, with 106.2 million fully protected accounts out of 107 million.

As of mid-2023, KDIC was overseeing the liquidation of 19 banks, including major institutions like Charterhouse Bank, Imperial Bank, and Chase Bank.

Another key aspect of the proposed changes is the potential review of the deposit coverage limit.

Currently set at Sh500,000, this threshold could be raised to provide greater protection to depositors with higher balances.

KDIC has already partnered with Zamara Consulting to explore adjustments to the coverage limit in light of factors like inflation and shifts in banking practices.

“There is a need to review the coverage limits on a regular basis in order to take into account inflation, changes in real income, the composition and size of deposits, and additional funding requirements,” KDIC explained.

As of December 2023, KDIC had Sh209.2 billion in its deposit insurance fund, which is generated by premiums from member banks.

The premiums are determined based on the size of each bank’s deposits and the risk level, with rates ranging from a base rate of 0.15 percent to a maximum of 0.4 percent of a bank's average deposits per year.