Risk profile based premium contributions will sink more banks: DPC
HARARE, Zimbabwe bank depositors’ insurer, the Deposit Protection Corporation (DPC) says while the risk based premium contribution is fair, if implemented under the current economic environment more banks will go under.
At the moment contribution to the Depositors Protection Fund by deposit taking financial institution is at a flat rate of 0.2% of total eligible deposits.
DPC chief executive officer John Chikura at an awareness campaign meeting for stakeholders in the banking sector said if the premiums are aligned to the risk profile, it will disadvantage smaller banks that have higher risk profiles.
“There has been issues raised by larger banks who are contributing more to the Fund due to the sheer size of their book yet their risk profile is low. This is a fair argument, but the moment we apply the risk based premium contribution some banks are already fairly troubled and an increase of their contribution will result in their failure,” he said.
He said the risk profile can only be implemented if the economy improves. DPC guarantees compensation up to the cover limit of $1000 for eligible deposits in the event of failure of a contributory institution.
Currently membership of DPC includes all commercial banks, building societies, merchant banks, finance houses, discount houses, and deposit taking micro-finance banks, Peoples Own Savings Bank (POSB), and the Infrastructure Development Bank of Zimbabwe (IDBZ).
According to Chikura, a total 25financila institutions are contributing to the fund and this include 13 commercial banks, five Buildings Societies banks, One Merchant bank, one Savings Bank, one Infrastructure Bank and four Deposit Taking Micro-Finance Institutions.
At closure of a financial institution, the DPC’s initial cover is 90% which is calculated at $1 000 and the claim procedure takes up to 60 days, which compares badly to international best practice requirement of 7 days. Balance will be covered during the liquidation process.
Since inception in 2003, the DPC has compensated for 9 failed banks and payment for banks that closed post the dollarisation period is still ongoing.