Staff Writer
The Deposit Protection Corporation has announced that it will start covering foreign currency accounts {FCA’s} from potential banking sector risks with effect from t December31, 2021 following consultations with stakeholders.
In a statement, DPC Chief Executive Officer, Vusilizwe Vuma said the deposit maximum protection cover will be pegged at USD 1 000 per deposit class per banking institution and USD 500 per deposit class per deposit taking micro-finance institution effective January 2022.
“Following the separation of depositor accounts into Zimbabwe Dollar {ZWL} and Nostro FCA’s, there has been no explicit deposit protection of Nostro FCA’s in Zimbabwe. To date, the corporation has been in consultation with stakeholders including the Bankers Association of Zimbabwe, the Reserve Bank of Zimbabwe and the Ministry of Finance to protect the said deposits,” he said.
Vuma said compensation to FCA holders would be made in foreign currency in the event of an incidence of a compensation event or bank failure, noting however, that compensation would not be made in retrospect and would not apply to liquidation that were currently under way.
He said the latest development was in line with the corporation’s legal obligation to protect depositors as enshrined in Section 5 of the DPC Act Chapter 24:09 as well as international best practice.
There had been widespread fears among stakeholders that the nearly US$2 billion deposited in local financial institutions was not safe as not was not covered by the DPC.
The situation then risked discouraging potential investors from depositing their foreign currency into the formal banking system for fear of losing their investments in the event of any risks.
Confidence in the local banking sector has been at its lowest, with most local banks struggling to meet depositors demands for cash since the adoption of the multi-currency system in 2009.
Deposit protection is a scheme established by government to protect depositors against the loss of their insured deposits placed with member institutions licenced to operate banking or finance business. As an integral component of an effective financial safety net, a Deposit Protection Scheme enhances consumer protection by providing explicit protection to depositors. Depositors will know when, how much and how their deposits are protected in the event of a bank failure.
Deposit protection scheme contributes to financial stability and prevent bank runs if depositors have confidence that they will have access to their funds quickly when a bank fails.
