The central bank has finally formalised protection for deposits being made at commercial banks when it launched the Namibia Deposit Guarantee Authority (NDGA) last Thursday.
The NDGA, established in terms of the Namibia Deposit Guarantee Act (2018), protects depositors, such as in the recent scenario at the now-defunct SME Bank, where depositors lost access to millions of dollars when the bank was liquidated in July 2017.
Court papers showed that the SME Bank had over 23 000 depositors, of whom some 98% had less than N$25 000 in their accounts. Those depositors’ claims against the bank totalled close to N$17 million, while depositors with more than N$25 000 added up to more than N$1 billion.
According to the head of the recently established NDGA, Emma Haiyambo, the main objective of the authority is to administer a deposit guarantee scheme.
“The scheme aims to provide protection to depositors against the loss of their deposits by providing compensation in the unlikely event of a commercial bank failure. This ultimately contributes broadly to consumer protection while enhancing financial stability,” she said.
The need to establish NDGA emanated from the Namibia Financial Sector Strategy (NFSS). The strategy was adopted in 2012, with the aim of transforming the financial sector into a more competitive, resilient and inclusive sector that would enable the economy to attain its highest potential.
Haiyambo stated that the NFSS advocates for, among others, an appropriate financial safety net to ensure depositors’ protection. The existence of the guarantee scheme ensures that depositors have access to all or part of their funds in the event of a bank failure.
She stated that it also guards against panic withdrawals by assuring depositors of the safety of their deposits – even in the event of a bank failure, thereby reducing the likelihood and scale of a financial systemic crisis.
All banking institutions registered in Namibian, as well as branches of foreign banks and building societies, are required to be members of the scheme and they are required to pay annual premiums.
Haiyambo added the scheme has a guarantee coverage limit, currently set at N$25 000. At this current limit, the scheme covers over 90% of current depositors.
At the official launch, the authority, which became fully operational on 1 February 2020, also presented its annual report for the year ended 31 December 2020.
During its first year, the NDGA established a sound organisational architecture, ensuring smooth operations in a challenging year. Over the period, Haiyambo noted the institution managed to create an efficiently operating organisation in a cost-effective manner. Thus far, several required and relevant policies, charters and agreements were developed and approved by the NDGA board.
On the legal front, a number of regulations and determinations were approved and published in the Government Gazette.
Haiyambo said the establishment of the Deposit Guarantee Fund and the operationalisation of the Investment Policy and Guidelines are a few of the major milestones during the Authority’s first year of operation.
To this end, member institutions, as required by law, have all paid their first annual premiums and such funds have been invested as per the approved Investment Policy and Guidelines.