Troubled banks  leave DPC exposed John Chikura
John Chikura

John Chikura

Business Reporters
SIX distressed banks are not paying the 0,2 percent Deposit Protection Corporation premiums on total annual deposits which has seen DPC’s exposure to the troubled financial institutions ballooning to $17 million.
DPC chief executive officer Mr John Chikura told a workshop for banks on publicity requirements of the DPC yesterday that as at June 30 about 11 contributory institutions with $1,2 billion in deposits were on DPC’s watch list, that is, had composite CAMELS ratings of “3” to “5”.

“There are 22 banks in total. At a cover level of $500, DPC’s exposure was $52,3 million, affecting 770 053 depositors (54 percent). Six of the 11 institutions on the watch list are in a distressed financial condition and DPC’s exposure to distressed contributory institutions of $16,9 million represents 138 186 accounts,” Mr Chikura said.

As at June 30, Mr Chikura said, the size of the Deposit Protection Fund was $14 628 846 some of which is invested in Old Mutual.

“The current exposure level calls for a robust deposit insurance fund capable of instilling confidence in the banking sector,” said Mr Chikura.

The deposit insurance cover is currently pegged at $500 and at this cover, 87 percent or about 1,3 million out of about 1,5 million depositors are covered in full. The DPC chief executive officer said a cover level of about $1 000 would ensure that at least 91,1 percent of depositors are covered in full and comply with the public policy objectives full coverage benchmark of at least 90 percent of depositors.

In an interview after the workshop, Mr Chikura said the Ministry of Finance and Economic Development reduced DPC premiums to the current 0,2 percent from 0,3 percent of their total deposits on an annual basis and this has made it difficult to build the fund.

“It is obviously not enough. It’s sad that the minister reduced the premium last year to the current 0,2 percent from 0,3 percent. It should have gone up because of the gap,” he said.

“We need to build the fund to the targeted level of 2 percent of the total deposit base which is around $76 million. That’s where we need to be,” said Mr Chikura.

He said the DPC premiums would be reduced once they reach the 2 percent of the deposit base which will lower the banks’ burden.

“If we arrive at that targeted level we will also be reducing these premiums. The sooner we have that fund the better because their burden will become lighter as well,” said Mr Chikura.

Zimbabwe legislation should be amended to synchronise with international best practices with regards to the time it takes to pay depositors in failed contributory institutions.

The DPC Act provides that payout should commence within three months from date of closure of a contributory institution. This is too long given the International Association of Deposit Insurers is aiming at seven days.

Following placement of a member on provisional and/or final liquidation by the High Court, DPC advises the insured depositors in writing, via electronic and print media to collect claim forms from its offices or from the internet for them to be compensated. The depositor is usually reimbursed within five working days from date of submission of a duly completed claim form.

Once the verification process is complete payment is done by mobile transfers, electronic funds transfer or cash for small amounts.

The DPC says there are material deficiencies in the current problem bank resolution framework militating against attainment of finality and speedy resolution of failing or failed institutions.

“In some jurisdictions litigation by former shareholders does not result in suspension of corrective remedial actions as compensation for proven breaches is pecuniary and not annulment of corrective orders and enforcement actions.

“Currently, the appointment of the corporation as a liquidator is still subject to confirmation by the courts. Proposed amendments have been submitted to the Ministry of Finance (and Economic Development),” said Mr Chikura.

 

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