Weaker banks that are having liquidity challenges could be in trouble when the Depositors Insurance Scheme takes off by December this year.
Customers’ funds will also be protected at least to a higher level when the scheme begins operation. A Depositor Insurance House will be established in that regard to run the scheme.
A banking expert who spoke to the Business Finder on condition of anonymity said that a draft bill is currently before parliament and the legislator will pass it into law by December this year.
According to him, the scheme will expose many banks that are misapplying and mismanaging depositor’s funds. The Bank of Ghana will apply sanctions on banks that fail to adhere to the expected amended regulation on deposits.
Deposit Insurance is a measure implemented in many countries to protect bank depositors in full or in part, from losses caused by a bank's inability to pay its debts when due.
Presently, commercial banks as required by law to keep 10 percent of their daily deposits with the Bank of Ghana. However, many banking experts and market watchers believe that alone is not safe to protect customers’ funds.
Banks lend or invest most of the money customers deposit with them instead of safe-keeping the full amounts. Therefore when the borrowers default or fail to repay their loans, the bank's creditors, including the depositors, risk loss.
Also, bank failures have the potential to trigger a broad spectrum of harmful events, including economic recessions.
The banking expert said a lot of banks in Ghana are having liquidity and cash management challenges and therefore the depositor insurance scheme will help safeguard the depositors’ funds.
The Bank of Ghana also says the scheme will serve as a remedy for the inconveniences that depositors encounter when a bank fails whilst it take away the over reliance on the central government.
It added that the scheme will provide some assurance to the general public such that they can deal with the banks without worrying too much.
Initial capital for the scheme according to the Central Bank will be in the form of a grant from the German government, while the Bank of Ghana and the Ghana government provides the remainder of the funds to keep it running.
The BoG will then begin the process of selling premiums of the deposit insurance scheme to all commercial banks in the country. The premium will however be charged on the bank based on their deposits. It is however unclear whether the banks will also be levied while fee based services are applied on products and services to mobilize funds for the Deposit Insurance House.
Governor, Dr. Henry Wampah earlier said in addition to the Depositors Insurance Scheme the bank is taking steps to further strengthen the regulatory and supervisory regime by revising and consolidating existing industry laws and introducing other guidelines.
The Depositors Insurance Scheme is being introduced because of the lessons learnt from the global financial crisis in 2008 where the most advanced economies including the USA almost collapsed.
The scheme is now being used by some African counties including Nigeria, Cameroon and Gabon. It is also used in countries including Canada, Belgium, Switzerland, Malaysia and Taiwan.
The United States was the first country to establish an official deposit insurance scheme, the Federal Deposit Insurance Corporation, during the Great Depression banking crisis in 1933.
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