Kenya seeks higher deposit guarantee after bank closure

Nairobi - Kenya's parliament is considering a proposal to raise the amount of bank deposits guaranteed in case of a collapse by 20 times to 2 million shillings ($19 800) per customer, the lawmaker who sponsored the amendment said on Friday.

Depositors and investors in East Africa's largest economy were rattled on April 7 when the central bank took control of mid-sized Chase Bank after it failed to meet its obligations.

It was the third mid-sized or small lender to be put into receivership in nine months.

Johnson Sakaja, a member of parliament from the ruling Jubilee coalition, told Reuters the current deposit protection limit of 100 000 shillings was set in 1985 and there was need to revise it upwards.

"Our proposal is to increase it to 2m shillings or a higher amount based on the discretion of the KDIC (Kenya Deposit Insurance Corporation)," he told Reuters. "A hundred thousand shillings is no longer justifiable."

In practice, the central bank has been ensuring depositors get access to more than 100 000 shillings. This week, it said customers of closed Chase Bank would have immediate access to deposits worth up to 1m shillings immediately, when branches open for some business next week.

Customers of Imperial Bank, a mid-sized lender closed in October due to fraud, were given access to a similar amount.

Sakaja said the KDIC had reserves of 55bn shillings at the end of last year and no new funds would need to be added.

KDIC is funded by charging commercial banks a small percentage of their deposits, he said.

The amendment was likely to sail through parliament as it also enjoys support of opposition lawmakers, whose constituents have also been hurt by the closure of the banks, Sakaja said.

"There is a lot of worry and fear," he said. "If you sufficiently cushion them (depositors), then you reduce the anxiety."

Parliament, through its finance committee was engaging the central bank on ways of bolstering supervision of banks, to guarantee a sound financial system, Sakaja said.

"By playing our oversight role we can ensure we have a stable financial sector," he said.