MPs betray Kenyans over protection from collapsed banks

MPs have betrayed Kenyans once again by sabotaging a push to protect deposits in banks and other financial institutions that collapse.

For the second time, the lawmakers Wednesday failed to raise enough numbers to ensure a vote to conclude debate on the Kenya Deposit Insurance (Amendment) Bill 2020, which aims to cushion depositors from losses when banks collapse.

The Bill, which proposes to increase the compensation to depositors should a bank collapse from Sh100, 000 to Sh1 million, stalled yet again in the second reading after a quorum hitch in the National Assembly, amid claims powerful forces were frustrating the law.

This means that the Bill, sponsored by North Imenti MP Abdul Rahim Dawood, proposing radical changes to the Kenya Deposit Insurance Act, 2012, will wait until Wednesday next week for another try.

At least 50 MPs are required to be in the House before a Bill sails through from the debate stage to the final legislative stage, the third reading.

“The principal object of this Bill is to amend section 28 of the Kenya Deposit Insurance Act, 2012, in order to increase the maximum amount a person with an account with an institution under liquidation is to be paid by the Kenya Deposit Insurance Corporation (KDIC). It further seeks to delete the provision limiting the maximum a person is to be paid by the corporation despite having different accounts,” the Bill states.

Uncomfortable

Mr Dawood told the Nation that some individuals in government have been uncomfortable with the proposed amendments notwithstanding that they intend to cushion customers and encourage people to save in banks.

KDIC last year announced it had revised amounts to be compensated to depositors upwards to “not only cushion bank depositors against losses in the unlikely event of bank failure, but also discouraging unconventional methods of banking.”

“When they saw my Bill, they increased the amount from Sh100,000 to Sh500,000. This was done through regulations. They then approached me to have the Bill dropped but I declined,” said Mr Dawood.

“It has to be in law and not regulations. I want it in law so that no one can have it changed arbitrarily,” the MP added.

The current situation is that if a customer has, for instance, three accounts in a bank each with about Sh300,000, they can only be compensated a maximum of Sh500,000. Compensation has also been taking time, as many Kenyans struggled to recover from losses when financial institutions go under with people’s deposits.

“What I am proposing, therefore, is that a customer should get compensated Sh1 million for every account held in a bank,” the MP said, besides seeking to cap the period within which compensation should happen to six months of a financial institution collapse.

Corporate malpractices

The push for enactment of the Bill is happening in the context of a financial sector that has been riddled with cases of dozens of banks and insurance companies that have collapsed with billions of customer deposits and shareholder funds. The main cause for collapse was corporate malpractices led by irregular lending, financial misreporting and unsafe business conditions.

Among recent cases is Dubai Bank which collapsed in 2015, Imperial Bank (2015), Chase Bank (2016), and insurers such as Blue Shield, Concord, United and Standard Insurance which were placed under receivership between 2005 and 2013.

Chase Bank, went down with Sh11.9 billion in shareholder’s equity, an asset base of Sh142 billion by December 2015 and about Sh56.9 billion in customer deposits.

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