Treasury Proposes Higher Bank Deposit Protection for Kenyans

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Kenya’s National Treasury has proposed to overhaul the country’s bank deposit insurance scheme, aiming to enhance financial security for millions of depositors in the event of a bank failure.

Currently, the Kenya Deposit Insurance Corporation (KDIC) compensates depositors up to a maximum of Sh 500,000 per individual, irrespective of the number of accounts they hold.

Under the proposed changes, the compensation cap would shift to a per-account basis, allowing depositors to claim up to Sh 500,000 for each account they own. This policy shift could strengthen deposit protection and boost confidence in the banking sector.

The existing framework, established by the Kenya Deposit Insurance Act of 2012, has often been criticized as inadequate for the modern banking landscape.

Under the current system, a depositor with multiple accounts totaling Sh 5 million would only receive Sh 500,000 if their bank collapsed. However, the proposed reforms would enable such a depositor to recover up to Sh5 million.

Treasury officials argue that this revision is necessary to align with contemporary banking practices, where individuals and businesses maintain multiple accounts for various purposes, including personal savings, business operations, and investments.

The proposed changes are also expected to reinforce trust in Kenya’s banking system, which has faced notable collapses such as Imperial Bank and Chase Bank in the mid-2010s.

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The KDIC’s current compensation limit of Sh 500,000 per depositor was set over a decade ago, replacing the previous Sh 100,000 ceiling. However, inflation and rising personal wealth have eroded the effectiveness of this protection, making the revision timely.

While the new policy would provide a stronger safety net, it does not extend protection beyond Sh 500,000 per account. For instance, a depositor with three accounts containing Sh 300,000, Sh 400,000, and Sh 600,000 would receive Sh1.2 million under the new scheme but still lose Sh 100,000 from the third account.

Despite widespread optimism about the proposal, concerns remain over its implementation. The KDIC Act will require amendments through parliamentary approval, and analysts caution that increased payouts could strain the deposit insurance fund.

Additionally, banks may raise fees or interest rates to offset the financial burden, potentially passing costs onto customers.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.