This archive report was first published on 1 July 2021.
Kenya has taken a significant step in strengthening its banking sector by introducing a risk-based insurance premium model for commercial banks. The model, which was suspended for a year due to the Covid-19 crisis, went live on July 1, 2021.
Under the new model, banks are rated based on their liquidity positions, capital adequacy, and asset quality and governance structures. Those rated as low-risk will pay the normal flat rate of 0.15 percent of their annual deposits to the Kenya Deposit Insurance Corporation (KDIC), while high-risk banks will pay 0.206 percent, an additional 0.056 percent.
According to KDIC Chief Executive Mohamud Ahmed Mohamud, the new model ensures equity in premium assessment and provides incentives for banks to avoid excessive risk-taking. He noted that the model was the culmination of three years of intense discussions and reviews with the KDIC membership and public participation.
Mr. Mohamud emphasized that all commercial and microfinance banks have been sensitized on the assessment process, premium rates, and how to improve their risk profile. The deposit insurance fund, run by KDIC, was created to compensate depositors of collapsed institutions and boost confidence in the banking industry.
Kenya's move follows Uganda's implementation of a similar risk-based premium payment model, where institutions pay a normal premium of 0.2 percent of their average weighted deposit liabilities, with high-risk institutions paying an additional 0.2 percent.
