Kenya Deposit Insurance Corporation moves to introduce bank wills

Kenya Deposit Insurance Corporation moves to introduce bank wills

KDIC Chief Executive Officer Muhamud Ahmed Muhamud

  • The sought after bank wills are technically similar to wills left behind by individuals and can be described as an action plan entailing how assets will be disposed off in the case of a bank failure.
  • KDIC Chief Executive Officer Muhamud Ahmed has previously underscored the importance of the living wills in ensuring the steadfast resolution of folded banks even as his priority lies in preventing bank crisis’ in the first place.
  • KDIC alongside the Central Bank of Kenya (CBK) have been at the frontline of protecting the interest of depositors, creditors and the wider public in view of instilling confidence in the banking sector.

The Kenya Deposit Insurance Corporation (KDIC) is on the move to establish bank wills which will serve as another stop-gap measure to expedite the resolution of collapsed lenders.

KDIC has put out an international tender under which it will procure a consultancy to develop a bank resolution plan/living wills framework.

The tender is expected to close on November 29.

The sought after bank wills are technically similar to wills left behind by individuals and can be described as an action plan entailing how assets will be disposed off in the case of a bank failure.

KDIC Chief Executive Officer Muhamud Ahmed has previously underscored the importance of the living wills in ensuring the steadfast resolution of folded banks even as his priority lies in preventing bank crisis’ in the first place.

“We would like banks to eventually do a resolution plan which essentially gives us living wills in case of failures entailing details on how the lender would want the succession of their estates to be. There is always the other side to the greener one,” he said in August 2019.

KDIC alongside the Central Bank of Kenya (CBK) have been at the frontline of protecting the interest of depositors, creditors and the wider public in view of instilling confidence in the banking sector.

Earlier in July, KDIC for instance introduced the risk based premium model which sees lenders’ back up customer deposits based on risks undertaken.

“This is another level of defence for depositors. Banks will be careful not to play around as they will be penalized by paying higher premiums,” said Mr. Muhamud.

In July 2020, KDIC enhanced the deposit coverage rate from Ksh.100,000 to Ksh.500,000 meaning account holders are now able to recive payments of up to Ksh.500,000 in the eventuality of a bank collapse.

The enhanced coverage presently covers all deposits by 98 per cent of bank customers in the country.

The dreaded back-to-back collapse of three commercial banks in the country including Chase, Imperial and Dubai Bank in the mid 2010’s sprung the KDIC and CBK into raising buffers to mitigate risks posed by bank failure.

Currently, KDIC is facilitating compensation to depositors in the collapsed CharterHouse and Chase banks.

On its part, the CBK which sits at the forefront of risk mititigation in the banking sector has been issuing guidance to banks to boot their crisis planning.

For instance in March last year, the CBK issued a guidance notice on pandemic planning for the banking sector.

Later in October, CBK asked commercial banks and mortgage finance companies to resubmit their internal capital adequacy assessment process (ICAAP) for review.

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