The Depositor Protection Board will invest part of its Deposit Protection Fund on Government guaranteed bills and bonds in 2015 as more banks continue to struggle on the back of a tightening liquidity situation. As at June 30 this year the size of the fund was about $15 million, some of which was invested in Old Mutual.
As at October the fund increased to about $16 million thereby giving room for DPC to spread its wings investment-wise.
DPC public relations manager Mr Allen Musadziruma told The Herald Business last week that it will diversify its investment portfolio next year to grow the fund.
“DPC Fund as at October 31 this year was $15 883 191,” he said.
All investments are currently with Old Mutual and there are plans to invest in Government guaranteed bills and bonds in 2015.
“DPC plays a key role in contributing to the stability of the financial system and enhancing depositor confidence in the financial system by establishing a framework for the resolution of failing or failed banks,” said Mr Musadziruma.
About six distressed banks have not been paying the 0,2 percent DPC premiums on total annual deposits which has seen DPC’s exposure to the troubled financial institutions ballooning to $17 million.
Mr Musadziruma, however, said DPC has since advised their lawyers to start legal proceedings against three banks for them to honour their obligations.
“Of the six distressed banks one institution is now up to date while another one is still under curatorship.
“Three institutions have not yet honoured their obligations due to DPC and another institution has outstanding payments for two quarters and we are making internal debt collection efforts,” he said.
The Deposit Protection Fund was established under Section 13 of the Deposit Protection Corporation Act (Chapter 24:29).
The primary objective of the fund is to compensate depositors in full or in part for losses incurred in the event of insolvency of a contributory institution.
In the event of a bank failure, DPC will compensate part or all of client’s deposits up to the current limit of $500 per depositor per bank.
Deposit balances above the insurable amount of $500 will be paid through the liquidation process upon realisation of assets.
Mr Musadziruma said payments to depositors of Trust Bank, Genesis Bank and Royal Bank were still in progress
There are 22 banks in Zimbabwe and six of the 11 institutions on the watch list are in a distressed financial condition.
The current exposure level of DPC calls for a robust deposit insurance fund capable of instilling confidence in the banking sector.
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 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 with The Herald Business this year, DPC chief executive Mr John Chikura said 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.