Kenya Deposit Insurance Corporation has unveiled plans to scrap of the current rate of 0.15 percentage points of total deposits held in banks.
The corporation says the move intends to discipline banks in the process and safeguard depositors as it also reviews the current flat rate premium model to risk based premium model.
The move will see the introduction of a new system where premium charged will be based on an individual bank’s risk appetite.
Speaking during the corporation’s inaugural stakeholder engagement forum, KDIC CEO 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 Mr. Mohamud.
Also speaking at the event was Treasury Chief Administrative Secretary Nelson Gaichuhie who said that well-designed safety nets could do more than just stabilize the financial system.
“They could also reduce the burdens placed on regulators and Central Banking in addition to providing increased room for discretion in financial institution’s activity.” Gaichuhie said.
KDIC’s Board Director James Teko welcomed the move noting the need for the industry to operate under modern legislations that incorporate good governance and intelligent business models.
“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 Teko.
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