DEPOSIT INSURANCE Guarantor to deposits vs insurer to bank s deposit

Transcription

1 Deposit Insurance Agency of Bosnia and Herzegovina DEPOSIT INSURANCE Guarantor to deposits vs insurer to bank s deposit Josip Nevjestić, Director of the Deposit Insurance Agency of Bosnia and Herzegovina Bucharest Financial Forum, May 24 26, 2011

2 Deposit Insurance Agency of Bosnia and Herzegovina DEPOSIT GUARANTEE SCHEME GUARANTOR TO DEPOSITORS VS INSURER TO BANK S DEPOSITS Who benefits most from the DGS functions? How much aware are the bank customers about tehir safe deposits? What kind of benefits/costs do banks draw following their membership to a DGS? REVIEW TO THE EXAMPLE OF DEPOSIT GUARANTEE SCHEEM OF BOSNIA AND HERZEGOVINA

3 Deposit Insurance Agency of Bosnia and Herzegovina DEPOSIT INSURANCE IN BOSNIA AND HERZEGOVINA Deposit Insurance Agency of Bosnia and Herzegovina (DIABH) Agencija za osiguranje depozita Bosne i Hercegovine (AODBiH) emerged as the successorof the entity-level deposit insurance agencies in October Support for the establishment of the insurance program was provided by the: - Coordination and conditions: the World Bank - Financial support: KfW and USAID - Technical support: the US Treasury and GTZ GmbH Features of the DIABH model Unique model: Independent Agency operates as independent legal entity with the full authority in accordance with the Law. Mandatory membership: banks that meet membership criteria are obligated to enter into the DIABH membership Stringent criteria for banking oeprations quality Limited amount of insured depost : KM 35,000 EUR 18,000 Ex-ante funding Credible Insurance Fund

4 Deposit Insurance Agency of Bosnia and Herzegovina DEPOSIT BALANCE BEFORE THE DIABH Savings Nonsavings Total Modest deposit volumen Small participation of private clients savings: 16.3% in RS 26.2% in Federation 0 Dec.00

5 Deposits since inception of DIABH Deposits since inception of the DIA Savings Non-savings Total Dec.00 Dec.01 Dec.02 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.10

6 Deposits since inception of DIABH Deposits since inception of the DIA Savings Non-savings Total Dec.00 Dec.01 Dec.02 Dec.03 Dec.04 Dec.05 Dec.06 Dec.07 Dec.08 Dec.09 Dec.10

7 Main developments In first 3 years of its existance, deposits more then doubled The share of savings increased to 38.2% of total deposits An important source for the refinancing The banking sector stabilized

8 Success factors of the DI Stability of the system Integral part of the financial system Political and financial independence Professional management Mandatory membership Stringent quaility criteria Transparency Credible Deposit Insurance Fund Active public relationship

9 Credible Deposit Insurance Fund Sufficient capital base Permanent strenghtening through premim contributions Carefull adjustment of the insurance limit Conservative Investment Policy Professional Fund Management Lender of the Last Resort (do not exist) In case of bank faliure, pay out first performed from the available liquid assets DIA has 3rd place payment priority after the Provisional Administrator and secured creditors

10 Active public relationship Psychology is the key success factor for the financial stability Information about the DI concept before inception An ongoing promotion after that Important role of (potential) Member Banks

11 Public awareness First PR campaigns gave the following results: Campaign in February 2004: DIA logo sign recognisibility : 26% Public awarness about DIA: 38% DI acceptance: 72% Campaign in September 2006: DIA logo sign recognisibility : 58% Public awarness about DIA : 63% DI acceptance : 95%

12 How important and significant role and the existence of deposit insurance is it s best showen by data that are particularly pronounced in the period before and after the crisis of depositors. We have witnessed the occurrence and escalation of the financial crisis, which has had the strongest peak in the last quarter Deposit Insurance Agency of Bosnia and Herzegovina at that time played a fundamentally important role, and has managed to prevent large outflow and withdrawal of deposits by private clients. According to data as at 31 Dec 2010, there was in total 25 banks from Bosnia and Herzegovina in the deposit insurance program. The growth rate of total deposits decreased in the last quarter of 2008 due to escalation of crisis in world financial markets and still has not reached the level of total deposits of KM 15.8 billion as at 30 Sep As per 31 Dec 2010, total deposits amounted to KM 15.1 billion.

13 A very important deposit category savings has during the 2010 recorded a constant growth, so that the all in all it was for 15% higer compared to the end of The Agency monitors this category of deposit on a weekly basis and there are less noticeable fluctuations. The most important fact to mention and emphasize is that the savings reached the level it had as per 30 Sep 2008 (KM 6.6 billion, together with accrued and unpaid interest) and the same was for 11.4% higher than before the crisis of depositors. Share of private clients saving has increased in 2010 to 43,9% from 37,8% as it stood in All of the above speaks to the fact that there is confidence in the banking system of our country, and that the existence and role of the Agency as guarantor of payment of insured deposits has been recognized by the citizens of Bosnia and Herzegovina.

14 Deposit Insurance Agency of Bosnia and Herzegovina TODAY: DEVELOPMENTS IN THE GLOBAL FINANCIAL MARKETS In the great chase after profit in the U.S. Subprime market, the global financial markets have lost ground. The financially connected world, the effects of subprime crisis in the United States have poured into the Euro-area and the rest of the world. There must be mentioned the role of poor supervision and rating agencies in the context of occurrence and the emergence of the global financial crisis The crisis has emerged in developed countries and spilled over to the small country where it caused the greatest harm. Many large financial corporations and investment banks failed, and there were not spared also other companies or industries which were virtually firing large number of lemployees on a daily basis The Euro-area debt crisis still continues. Such a difficult situation requires a lot of time and effort to come out of recession.

15 Deposit Insurance Agency of Bosnia and Herzegovina TODAY: REGION OF THE BALKAN COUNTRIES Under media pressure related to reporting on the effects of financial crises, the major western European economies have felt the indirect consequences of the global crisis. All neighboring countries have recorded a marked decline in deposits and savings in banks, especially in the month of October According to data of the Deposit Insurance of Serbia, Macedonia, Croatia, Monte Negro, the population began to take and withdraw their money by storing the same in safe deposit boxes at banks. In order to prevent panic and unnecessary negative impact of the same, the governments of countries from around the world, including countries from the region, responded in a way that they publicly pledged to increase the amount of insured deposits and provision of government guarantees. The insured deposit limit in the region increased mainly at EUR 50,000, or EUR 100,000 in the stronger economies or bjanko coverage.

16 Deposit Insurance Agency of Bosnia and Herzegovina TODAY: DEPOSIT INSURANCE IN BOSNIA AND HERZEGOVINA Although the banking system of Bosnia and Herzegovina is stable, and the banks are hyper-liquid, taught by the bad experience of old frozen FX savings, the citizens of BiH have reacted the same as citizens of neighboring countries - withdraw money and store it in the banks sfae deposit boxes. In October 08, the total savings deposits decreased in the amount of KM 700 million or 11,9% just in one month this data refers only to Member Banks of DIABH. As an attempt to prevent the negative impact of media coverage of the global crisis, public institutions from the financial system have responded in Bosnia and Herzegovina, namely: the Central Bank of BiH, the entity banking agencies and the Deposit Insurance Agency (DIABH). From October 08 until the end of Decmber 08, KM 50 million was returned in the Member banks and until today enitre withdrawn savings is returned in the Member Banks.

17 Deposit Insurance Agency of Bosnia and Herzegovina TODAY: DEPOSIT INSURANCE IN BOSNIA AND HERZEGOVINA Insurance limit is increased to KM 35,000 and the insurance covers only deposits of physical persons. This increase is based on the financial model and mathematical calculations. There was increasing pressure for making higher limits but the DIA has resisted pressures basing its decisions on real facts. Insurance premium rate for 2011 remained at the same level (0.3% per annum) on the basis of the eligible deposits. Deposit Insurance Agency (DIA) is in constant contact and negotiations with the World Bank, EBRD and other relevant Int. financial institutions in order to find out additional funds for strengthening the Deposit Insurance Fund. (Stand-by arrangement with EBRD). The problem of Bosnia and Herzegovina is in great indebtedness of its citizens, and by DIABH s assessments, the withdrawal of deposits and savings was not caused only a psychological syndrome of old frozen FX savings, but also the reasons that people use their savings for the needs of daily existence. Deposit Insurance Fund, unfortunately, in case of a major systemic crisis can not act alone, and certain involvement of the state is required.

18 Deposit Insurance Agency of Bosnia and Herzegovina TOMORROW: DEPOSIT INSURANCE Funding model: Discussions on the DI model highlights that the current global crisis has confirmed that the ex-ante model is better in situations of large-scale crisis Insured amount: The European Union initiated a gradual return to the transition from the blank and unlimited deposit insurance to the limited insurance - advocating the introduction of a single amount - we consider it unacceptable for the reason that the same limit does not fit all countries (developed and undeveloped countries). Introduction of unique DI principles: IADI and EFDI have published core principles - it is possible that they will become an international standard for DI

19 Deposit Insurance Agency of Bosnia and Herzegovina TOMORROW: DEPOSIT INSURANCE Introduction of unified DI: Ideas about the existence of Pan-European deposit insurance scheme - views of the European countries divided - there is no unified opinion about the necessity of introducing such a program (the problems of membership, funding, liability in case of payment) DI in Bosnia and Herzegovina: DIABH will continue to try to work towards achieving compliance with the requirements of EU Directive on Deposit Insurance. Continuing to build and strengthen the Insurance Fund. Analysis and consideration of possibilities for introduction of a risk-based premium system - goal for a future period.

20 Thank you for your attention!