Financial depositors’ protection Bill tabled

Home National Financial depositors’ protection Bill tabled

WINDHOEK – Finance Minister Calle Schlettwein on Tuesday tabled the Deposit Guarantee Bill of 2018 in the National Assembly, aimed to protect depositors in the event of failure of a banking institution.

Motivating the Bill, the minister said in recent years a number of countries in the world experienced bank failures – with Namibia still having the unresolved issue of SME Bank where many depositors are still owed money after the bank was liquidated.

In the SME Bank case, small and medium enterprises have been knocking at the doors of the Namibia Chamber of Commerce and Industry (NCCI) for help to get their money from the defunct bank.

The SME Bank is owned by the Namibian government, through the company Namibia Financing Trust, with 65 percent of the shareholding, while the Metropolitan Bank of Zimbabwe is a 30 percent shareholder. Zimbabwean company Worldeagle Properties has a stake of five percent.

The closure came about after approximately N$200 million that the SME Bank Namibia ‘invested’ with South African entities vanished. 

A large chunk of the SME Bank funds was deposited into Venda Building Society (VBS) Mutual Bank, a South African Bank which is also now under curatorship.

However, the South African Reserve bank has already ordered that all the depositors should be allowed to withdraw their money up to the guaranteed N$100 000 which is according to the South African company law, barely two months after the VBS bank closed. 

Sadly, the Namibian law guarantees depositors N$25 000 only of their money deposited in case of liquidation. 
This means that anything above N$25 000, depositors are bound to lose it or get a fraction of it. 
It is for this reason, Schlettwein says, that government should establish mechanisms to manage bank failures and protect the interest of depositors while ensuring financial stability.

“Micro-prudential measures to ensure and strengthen financial stability require that we exercise effective bank resolution mechanisms. Such measures must also address the impact on depositors in the event of potential failure of deposit taking banking institutions such as what was witnessed in the case of the SME Bank,” Schlettwein said.
In the new Bill, a depositor is entitled to compensation from the fund up to maximum coverage limit determined by the board (maximum coverage limit is currently envisaged at N$25 000).

Where a depositor holds more than one deposit, Schlettwein said in a banking institution, all deposit accounts held by such depositor in such institution shall be added together and protected up to the maximum coverage limit.
Further, he said depositors entitled to compensation shall be required to submit claims within 18 months after being notified to submit their claims.

Schlettwein said the Bill does so by establishing a Deposit Guarantee Scheme, which will collect premiums from banking institutions for compensation to depositors, and further by establishing a Deposit Guarantee Authority under governance framework of the Bank of Namibia to oversee the operations of the scheme.

“The proposed Deposit Guarantee Scheme and its governance framework can minimise the negative impact on depositors and the entire financial system,” he noted.

He said the scheme shall ensure that in the event of a bank failure, defined levels of reimbursements to depositors are carried out in an efficient, transparent, and speedy manner, in order to contain the risk of a bank run, and to minimise the negative impact of delayed access to own funds for especially the small depositors.

Schlettwein recently asked the courts to compel the insurance companies to start complying with the law, despite their pending case which is supposed to review the validity of the 1998 law.
NamibRe, a state-owned entity, was established by an Act of Parliament in 1998 to become a Namibian enterprise tasked with carrying out reinsurance services in the country. 

Key aspects of the law are that insurance companies will have to ensure that 12.5 percent of the reinsured portion of all policy premiums worth over N$100,000 are surrendered to NamibRe.
A number of insurance companies took government to court claiming that the 12.5 percent was excessively harsh and severe. 

They equally argued that the law compelling them to part with 12.5 percent is flawed and want the law invalidated.