The Kenya Deposit Insurance Corporation (KDIC) has announced the implementation of the risk-based insurance premium model for commercial banks which had been suspended last year due to the Covid-19 crisis. The model will now be used to assess the premium payable by the member banks and KDIC says this new dispensation in Kenya’s banking sector, is a culmination of three straight years of intense discussions and reviews with its membership on both the design of the model and its efficacy as well as public participation.
The anticipated Risk-Based Premium Assessment Model will provide incentives for banks to avoid excessive risk-taking and ensures equity in the premium assessment process in line with the Corporation’s core mandate and compliance with Section 27 of the KDIC Act, 2012. The model will utilize a variety of relevant information provided by the bank to determine its risk category and enable the Corporation to differentiate risks among banks and effectively assign premiums for each risk cluster.
KDIC says all commercial and microfinance banks, who are members of the deposit insurance, have at individual levels been sensitized on the assessment process of determining risk categories, the premium rates for each category, and how a bank could improve its risk profile. This model will be regularly re-assessed on its effectiveness and efficiency in meeting its objectives. Where it is found, necessary, it will be updated and/or revised to meet changing market conditions or requirements in order to to address any emerging issues.
KDIC implemented the deposit insurance coverage of KSH 500,000 in July 2020 for the member banks to support it to meet its funding obligations in case of a bank collapse and the need for payment for depositors arises. KDIC was created to guarantee the protection and compensation of small, vulnerable, and unsophisticated depositors of collapsed institutions so as to boost the public confidence of the country’s banking industry. It has since played a key role in the stability and effectiveness of the Kenyan financial system.