Depositors Protection Corporation to cover for struggling banks

12 Oct, 2014 - 09:10 0 Views

The Sunday Mail

THE Depositors Protection Corporation is feeling the strain of having to cover for struggling banks that are currently defaulting on payments to a public scheme that is supposed to compensate depositors in case of bank failure.

Banks are statutorily required to pay 0,3 percent of their total annual deposits to the depositors’ protection scheme.

DPC chief executive officer Mr Charles Chikura told The Sunday Mail Business last week that although ailing banks are not contributing to the scheme, the Corporation was nonetheless expected to shoulder the burden of repaying depositors in the event that the banks fold.

“Take, for example, Interfin, the bank is in trouble, under curatorship and not paying, but when they ultimately close, we have to pay their depositors,”said Mr Chikura on the sidelines of a DPC workshop for bankers.

DPC, which is currently holding more than US$14 million, is owed over US$17 million in unpaid levels by six troubled banks. Mr Chikura wants banks currently considered high risk to pay up and help boost confidence in a sector already plagued by low market confidence.

“There are some banks that are struggling and are not paying their premiums. But, going forward, we are hoping they will be able to pay up because we want to protect the depositors,” he said.

The Reserve Bank of Zimbabwe, which recently passed the banking sector as fundamentally sound, is concerned about the financial health of AfrAsia, Tetrad, Allied Bank and MetBank.

When a bank fails, the DPC repays a maximum of US$500 per depositor per bank. The corporation intends to raise the cover to $1 000 per individual per bank if premium payments improve.

Outside premium payments, the DPC requires its members to display communication in banking halls, ATMs and bank teller desks showing they are members.

This is all designed to boost confidence within the banking public.

Mr Chikura indicated that random surveys showed that the public were being driven by their mistrust of the banking system to opt for unconventional methods such as stashing cash in mattresses, pillows or burying it.

As the economy continues to falter, banks, just like other sectors of the economy, have been adversely affected.

The banking sector has suffered a crisis of confidence from the public since 2004 when five banks were closed by the RBZ.

Depositors’ funds were locked in the failed banks. In addition, depositors struggled to access their funds from banks during the hyper-inflationary period of 2008 and eventually lost those funds after dollarisation the following year.

This bred a serious mistrust of brick and mortar banking institutions.

In 2013, a survey by FBC Securities revealed that more than 76 percent of the country’s total population had no access to formal financial service. The report showed that despite having 22 banks then and over 100 micro-finance institutions, Zimbabweans were still under-banked.

This was attributed to confidence issues as well as failure by financial institutions to tap into the informal sector and rural folk who constitute a huge chunk of the country’s population.

Since its inception in 2003, DPC has compensated depositors of six failed banking institutions – Century Discount House, Rapid Discount House, Sagit Finance House, Genesis Investment Bank, Royal Bank, and Trust Bank Corporation – that were liquidated. Payments to Genesis, Royal, and Trust depositors are still on-going. Prior to DPC’s formation, depositors of financial institutions that closed were not compensated. Unsurprisingly, account holders in Universal Merchant Bank, which was closed in 2001, didn’t get a single penny.

Under the current legislative framework, compensation is only limited to financial institutions that are liquidated.

The DPC is an autonomous statutory body established in 2003 under the Banking Act to administer the Deposit Protection Fund. The Corporation aims to protect depositors, contribute to the stability and public confidence in the financial system and participate in problem bank resolution. The DPC is required to monitor and assess risk of members and carry out, where necessary, special examinations, curator ship and liquidations.

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