Savers with multiple accounts in collapsed banks could soon receive full compensation for each account they hold, should proposed amendments to the Kenya Deposit Insurance Corporation (KDIC) Act be enacted. This would mark a major shift from the current system, where compensation is capped at Sh500,000 per individual, regardless of how many accounts they have.
The Treasury is seeking to remove a clause in the KDIC Act that consolidates an individual’s total deposits for compensation purposes. If approved, this change would allow depositors with multiple accounts to claim up to Sh500,000 per account. For instance, a depositor with ten accounts, each containing Sh400,000, would now receive a total of Sh4 million, instead of the current Sh500,000 limit.
A survey by the Kenya Bankers Association (KBA) found that 63.28% of bank customers in Kenya maintain at least two accounts, reflecting a strategic effort to spread financial risk. The proposed amendment aims to enhance financial security and align with global best practices for deposit insurance.
This legislative move follows a failed attempt in Parliament to raise the compensation limit to Sh1 million, which faced opposition from the Treasury, the Attorney-General, and KDIC.
KDIC data from December 2023 shows that Kenya’s banking sector held Sh5.8 trillion in customer deposits, of which Sh857.8 billion was insured against bank failures. Currently, KDIC covers 99% of all bank accounts, meaning 106.2 million of Kenya’s 107 million accounts would be fully insured under the current compensation scheme.
The need to review coverage limits regularly has also been emphasized, with KDIC engaging Zamara Consulting to analyze how inflation and economic factors should influence compensation caps. A previous study found that raising the cap to Sh1 million would cover 99.9% of all accounts.
Kenyan depositors were shaken nearly a decade ago when three mid-sized banks—Dubai Bank, Chase Bank, and Imperial Bank—collapsed between 2015 and 2016. While Dubai Bank faced liquidation, Chase Bank and Imperial Bank saw their performing loans and deposits absorbed by the State Bank of Mauritius (SBM) and KCB, respectively.
Currently, KDIC is overseeing the liquidation of 19 financial institutions, including Charterhouse Bank, Imperial Bank, and Daima Bank. Legal battles have stalled compensation payments for some depositors, including those in Charterhouse and Imperial Bank, where liquidation proceedings began in 2021.
The proposed changes aim to provide depositors with quicker access to their insured funds while reinforcing confidence in the banking sector. If passed, the amendments would significantly increase financial security for account holders in the event of future bank failures.
