WHAT IS DEPOSIT INSURANCE?
Deposit Insurance is a system that protects depositors against the loss of their insured deposits placed with banks in the unlikely event of a bank failure. Conventional life and short term insurance companies do not provide deposit insurance cover. Generally , deposit insurance is a government sponsored scheme whilst in certain countries it is managed by banks.
Deposit insurance systems can promote financial stability and prevent bank runs if depositors have confidence that they will have access to their funds quickly when a bank fails.
DPC’S PUBLIC POLICY OBJECTIVES
In line with International best practice, the Deposit Protection Corporation (DPC) aims at meeting a number of objectives, which include the following;
• Protection of depositors by providing compensation in the event of a bank failure.
• Enhancing financial stability and public confidence by establishing a framework for the resolution of failing or failed banks.
• Administering the deposit protection fund.
• Enhancing competition in the financial sector by creating a level playing field through guaranteeing depositor reimbursements for both big and small banks.
Currently DPC’s mandate is narrow and is confined to compensating depositors in the event of a bank failure.
In line with international best practice ,DPC intends to broaden its mandate so that it can actively participate in resolving failing or failed member institutions
DPC gets its funding from levies collected from member banks ,ie Commercial banks, Merchant banks and Building societies .
Depositors do not pay premiums for deposit insurance cover.
Premium contributions are levied at a flat premium rate of 0.3 % per annum or 0.075% per quarter with a minimum and maximum of US$500 and US$30 000 respectively.
Membership is mandatory and it includes all deposit taking institutions ie, Commercial Banks, Building Societies and Merchant Banks.
Deposits with Asset managers, the POSB is currently not covered by the DPC.
DPC will strive to compensate at least 90% of depositors in full in the event of a bank failure.
Currently the maximum insurable limit is pegged at US$150.00 per depositor per bank.
Amount payable to depositors is reviewed regularly.
SCOPE AND LEVEL OF COVER
The following deposit accounts are covered by the scheme;
• Demand and Time deposits,
• Savings deposits
• Class B and Class C shares.
• All individual, corporate and trust accounts in insured institutions are covered by the deposit insurance scheme.
• Negotiable certificates of deposits(NCDs) , interbank deposits and bankers’ acceptances(BAs) are currently excluded from cover.
BENEFITS OF DEPOSIT INSURANCE
Benefits to Depositors
• Deposit insurance ensures that depositors do not lose all of their hard earned savings in the event of a bank failure.
• Depositors will know how and when reimbursement of their deposits will be made in the event of a bank failure.
• Deposit insurance reduces the likelihood of panic withdrawals and bank runs thereby enhancing stability and confidence in the financial sector.
• Deposit insurance protection is automatic once a depositor opens an account with an insured institution.
• There is no charge to depositors for deposit insurance protection, banks bear the cost of deposit insurance.
Benefits to the Financial System
• DPC promotes public confidence in the Zimbabwean financial system by protecting depositors against the loss of their deposits.
• Deposit insurance complements the supervisory and regulatory framework by providing incentives for sound risk management in the financial system.
• Deposit insurance contributes to the the stability of the financial system by dealing with bank failures expeditiously and reimbursing depositors promptly.
CLAIMS & SETTLEMENTS
When an insured institution has been liquidated DPC advises the insured depositors via electronic or print media to collect claim forms from its offices in order for them to be compensated. Once a duly completed claim form has been submitted together with supporting documents( copy national ID and bank statement ) , the depositor is reimbursed within 5 working days from date of submission of a duly completed claim form.
Payment is either through cash, bank transfer or bank cheque.
Since its inception in 2003, DPC has compensated depositors for 3 collapsed institutions ; namely , Sagit Finance house, Century and Rapid Discount House.
To date a total of 3482 depositors have been compensated by DPC as shown in the table below.
DEPOSITOR PAYOUTS AS AT 23 October 2012
INSTITUTION DATE CLOSED TOTAL DEPOSITORS DEPOSITORS PAID % PAID
CENTURY 2 JAN 2004 397 178 45%
RAPID 26 MAR 2004 1215 472 39%
SAGIT 2 MAR 2006 3003 2832 94%
*GENESIS 11 JUN 2012 85 46 54%
TOTALS 4700 528 75%
*Payments for Genesis Bank depositors are still in progress.
Deposit insurance is recognized internationally as an important component of a country’s financial safety net and has been implemented in over 100 countries around the world.
The DPC is an active member of the International Association of Deposit Insurers (IADI). More details about the activities of IADI can obtained from the IADI website.