By: Nghiinomenwa-vali Erastus
In the event of a commercial bank filing for bankruptcy, 4,9% of Namibia depositors’ money is fully insured and can be returned while 95% is partially covered.
This is according to the 2022 annual report of the Namibia Deposit Guarantee Authority (NDGA).
This means that by the end of December 2022, N$3,02 billion of qualifying deposits were fully covered and could be returned in any bank failure in the country.
This N$3,02 billion that was fully covered belongs to the 90,9% of the Namibians who had deposits with commercial banks while N$58,7 billion was partially covered to be returned.
Collectively, N$61,7 billion was fully and partially covered that belonged to 1,5 million depositors.
By the end of March 2023, the commercial banks’ deposit claims stood at N$148,9 billion.
The NDGA maintains and manages a Deposit Guarantee Scheme aimed at compensating depositors in a speedy, efficient and transparent manner in the event of member institutions’ failure.
Deposit insurance systems are one component of a financial system safety net that promotes consumer protection while safeguarding financial stability.
The NDGA’s existence is also meant to prevent panic withdrawals by assuring depositors of the safety of their deposits even in the event of such failures, thereby reducing the likelihood and scale of a systemic crisis.
The country had one share of bank failure with the closure of a government-established SMEs Bank and there was a struggle to find money to repay the SME Bank depositors.
Recently the Bank of Namibia filed an application with the High Court of Namibia on 2 November 2022 to liquidate Trustco Bank Namibia Limited.
According to the central bank, this is due to the failure of Trustco Bank and its shareholders to remediate severe flaws in the bank’s risk management practices and systems, and failure to maintain liquidity ratios within the prescribed ratios.
The NDGA has a possible obligation to depositors of Trustco Bank subject to the court case’s outcome.
The contingent liability is estimated at N$741 256 at the reporting date.
The depositors’ money is not safe due to the deposit guarantee scheme, but the banks are also well-capitalised to return the money.
The latest Financial Stability Report indicated that, despite the unprecedented shocks over the last few years occasioned by a contractionary environment, the banking sector has maintained adequate capital positions above prudential requirements.
Total risk-weighted assets stood at 17.0% at the end of December 2022, higher than the statutory minimum risk-weighted capital requirement.
The country Guarantee Scheme adopts a predetermined coverage limit per depositor in respect of the total of that individual’s deposits at a member institution that has failed.
The guaranteed coverage threshold is currently set at N$25 000 maximum, which an individual will get if a specific bank fails.
The board of the Scheme regularly reviews this amount.
According to the NDGA board, this threshold ensures that a significant number of small depositors are covered in the event of a bank or building society failure.
By the end of 2022, the Deposit Guarantee Fund fully covered 90.9 percent of total depositors at the set threshold, a marginal increase in comparison with the 90.7 percent recorded for the end of the previous reporting year.
The Scheme also provides partial coverage for depositors with deposit values above the coverage limit, i.e. above N$25 000 in total deposits.
These partially covered depositors are also eligible to receive a reimbursement up to the threshold value.
By the end of the review period, partially covered depositors constituted 9.1 percent of total depositors, a slight decrease from 9.3 percent recorded by the end of 2021.
For deposits above N$25 000, the depositors would typically be concurrent creditors of the member institution involved.
Most types of deposits received by a bank or building society in its usual course of business, such as savings and call or other term deposits, are covered by the Scheme.
Notable exclusions are foreign currency accounts and tradable debt and deposit instruments, negotiable certificates of deposit as well as deposits at institutions regulated and supervised by the NAMFISA.
Deposits from institutions in which the Namibian Government is a shareholder are also not covered.
The Scheme adopts a predetermined coverage limit per depositor in respect of the total of that individual’s deposits at a member institution that has failed.
Thus, where a depositor holds more than one deposit in a failed banking institution, the value of all deposit accounts held there by that depositor will be added together and the claimant will be compensated up to the maximum coverage limit.
The market value of the Deposit Guarantee Fund stood at N$16,2 million by the end of the reporting year, representing a significant increase from N$10,3 million the year before.
The NDGA has been operating for the first three years without membership of the International Association of the Deposit Insurers. Email: erastus@thevillager.com.na
