The Deposit Insurance Bill currently before Parliament is likely to be passed into law within the next couple of months to pave the way for retail deposits to begin.
This will enable Ghanaians to enjoy deposit insurance before the end of the year since the insurance of deposits covered under the impending law will come into force six months after the law is approved.
[contextly_sidebar id=”XueYQbd3qWwLKybPJlsr1kYqdjBX6Hxw”]The latest hurdle to be crossed is the confirmation of an agreement between the Government of Ghana and the Bank of Ghana to each contribute 10 million Euros which will form seed capital for the state owned Ghana Deposit Protection Corporation (GDPC) that is to be established to run the deposit insurance scheme.
The other source of seed capital will be a one off insurance premium to be paid by each participating financial institution equivalent to 0.1% of their minimum capital.
Subsequently the scheme will be financed from regular premiums assessed and paid annually by deposit taking financial institutions to the GDPC.
The Bill, which was initially introduced onto the floor of Parliament by Deputy Finance Minister Cassiel Ato Forson on behalf of Finance Minister Seth Terkper in May 2015, has undergone its second reading and the legislative house will now be expected to fast track its passage into law, guided by the report of the Parliamentary Finance Committee.
Members of Parliament from both sides of the political divide are broadly in agreement on the contents of the bill in the face of the recent partial melt down in the microfinance industry and a resultant loss of over GHc100 million in retail deposits.
Deposit insurance will cover all deposit taking institutions licensed by the BoG: universal banks, savings and loans companies, deposit taking non bank finance houses, rural banks and microfinance institutions inclusive.
However only relatively small deposits will enjoy insurance cover with insured deposits placed with banks subject to a maximum cover of GHc5,000 and those with other deposit taking institutions subject to a cap of GHc1,000.
Annual premiums to be paid by the various genres of deposit taking institution will be determined by the GDPC which will set different insurance premiums for different types of institutions with one rate being applied on premiums paid by universal banks and which will go into a dedicated fund; and different rates paid by specialized deposit taking institutions and which will go into a separate dedicated fund.
The Corporation will be allowed by law to set its annual premium rates at anywhere between 0.3% and 1.5% of the average volume of deposits held during the year under assessment, the actual rate depending on the level of risk it perceives for a particular genre of financial institution and ultimately for a particular deposit taker.
However in certain circumstances it will be allowed to charge extra ordinary premiums of up to twice the normal premiums for up to a one year period for an institution whose risk levels go abnormally high.
Although insurance cover on deposits will be limited it will nevertheless come as a welcome relief for small depositors, since their limited knowledge as to the financial solidity and prudence of the financial institutions they place their deposits with, makes them vulnerable to financial institution failures.
Crucially, apart from guaranteeing the redemption of small deposits, the GDPC will also reduce the likelihood of financial institution mortality through imprudent financial management in the first place.
Like any other insurer it will insist on prudent operational conduct by the deposits who accept insured deposits and thus will effectively be a regulatory partner to the BoG itself, thus greatly improving regulatory capacity.
Indeed since financial institutions will be required by law to insure their deposits, the GDPC could withdraw a financial intermediary’s legal right to accept deposits from the public simply by declining to insure the deposits it has taken on the grounds that there is an inordinately high risk of default with regards to redeeming the deposits.
Ghana will be joining many other jurisdictions which have deposit insurance schemes in place, ranging from the United States to neighbouring Nigeria.
By: Toma Imirhe, Editor of Financial Post Newspaper