Bill seeks more protection for depositors

Source: The Herald – Breaking news.

Bill seeks more protection for depositors 
Ms Kiitumetsi Zawanda

Farirai Machivenyika and
Gloria Muruva

The proposed amendments to the Deposit Protection Corporation Act will prioritise the compensation of ordinary depositors over institutional debtors in the event of bank failures, acting Deposit Protection Corporation chief executive, Ms Kiitumetsi Zawanda told Parliamentarians last week.

Speaking at a breakfast meeting with legislators from the Parliamentary Portfolio Committee on Budget, Finance, Economic Development and Investment Promotion last Friday she updated them on the amendments to the Deposit Protection Corporation Act.

The Deposit Protection Corporation was established in 2003 to compensate depositors from losses incurred in the event of bank failures.

“The current Act ranks depositors who are the unsophisticated people from the constituencies and so forth not as high as we would want them to be. You find that statutory creditors like Zimra, Zimdef and NSSA were ranked higher in terms of creditors of the bank than (ordinary) depositors.

“So, we thought to fix that because Zimra does have powers to pursue the bank, while it’s still alive so why should we be giving them preference at that stage when we can protect the unsophisticated and innocent depositor instead,” she said.

Ms Zawanda said the proposed amendments would also ensure that shareholders of formerly insolvent institutions do not benefit from any currency changes or inflation that may result in them becoming solvent.

“You find that some liabilities, five to 10 years ago were in US dollars and some changes happened in the economy and that liability became Zimbabwe dollar.

“This change of value gave an advantage to some of the shareholders because there comes a point where there is a residue because of a movement of inflation and they gain because of those movements.

“We found ourselves with residue and the law currently states that residue has to be returned to shareholders so these are some of the things we are trying to address in the current amendments so that what was once an insolvent institution does not fortuitously become solvent because of operation of economic fundamentals,” she added.

Deposit Protection Corporation chairman, Mr Agmos Moyo said the Act was important in protecting depositors.

“The Depositors Protection Corporation Act plays a pivotal role in safeguarding the interests of depositors and maintaining confidence in our banking institutions.

“The Deposit Protection Corporation’s job is to be a soft landing for the depositors in the event of a bank failure. By providing a safety net for depositors in the event of a bank failure, this legislation is essential for promoting financial stability and protecting the savings of individuals and businesses across Zimbabwe,” he said.

The chairman of the Parliamentary Portfolio Committee on Budget, Finance and Economic Development and Investment Promotion Cde Clemence Chiduwa said amendments to the Act were essential in protecting the depositors and maintaining trust in the banking and financial services sector.

“One of the primary reasons why amending the deposit protection laws is crucial is to safeguard depositors’ funds. In the event of a bank failure or financial crisis, depositors should have confidence that their money is safe and will be reimbursed up to a certain limit.

“By enhancing deposit protection laws, we can instil trust in the banking system and encourage more people to save and invest their money, ultimately promoting economic growth and stability,” he said.

Cde Chiduwa said maintaining a robust deposit protection framework was essential for maintaining financial stability within the country, in times of economic uncertainty or banking crises. A lack of adequate deposit insurance could lead to widespread panic withdrawals, bank runs and systemic risks.

Other proposed amendments to the law include enhanced use of ICTs in deposit protection to cut out travel by ordinary people to prove their claims, representation of depositors on the Depositors Protection Corporation board and protection of assets of failed institutions from theft by unscrupulous shareholders among others.

The country experienced at least nine bank failures in the 2000s as many of the newly licenced banks ran into major trouble, often with executives and shareholders becoming major borrowers.

The new banks run properly not only survived the turmoil, but in some cases have become leaders of the sector.