Central Bank regulators in the East African Community (EAC) are drafting laws to harmonise the amount of compensation bank customers are entitled to upon the collapse of a lender.
The proposed regulations are part of the ongoing efforts to integrate the EAC financial sector before establishment of a common currency in the region.
Customer deposits held by Kenyan banks are insured to a limit of Shs100,000 per account holder, compared to a maximum of $1,714 (Shs146,000) for Ugandan depositors and about US$160 (Shs13,500) for Tanzanians.
“We are moving towards harmonising the legislation and policies for deposit insurance in the region.
One of the risks we face without the common policies and law is arbitrage such that people can move accounts, for example, from one country to the other to exploit the differences,” said Rose Detho, director of Kenya’s Deposit Protection Fund Board (DPFB).
Ms Detho said it is possible for users of financial services to exploit loopholes inherent in the different regulations and practices in the five countries to make money by moving accounts from one country to another.
Other cross-border risks posed by the different regulations on deposit insurance include the insolvency process, the basis of compensation of depositors — whether by branch or subsidiary — as well as extent of the insurance.
“The harmonisation framework is expected to be complete by 2015,” said Ms Detho.
She was speaking to journalists on the sidelines of an international workshop called at the Kenya School of Monetary Studies (KSMS) in Nairobi on Monday to assess the strength of the deposit insurance framework and how it can be improved.
It was organised by the International Association of Deposit Insurers (IADI).
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