This week, Observer Money asked Florette Nakusera, Head of the Namibia Deposit Guarantee Authority about the operations of the Authority. Nakusera says the SME Bank failure provides valuable lessons as far as the need to ensure that an effective deposit insurance is in place.
Observer Money (OM): The Namibia Deposit Guarantee Authority’s 2022 Annual Report said deposit schemes have been implemented in many countries to protect bank depositors either fully or in part from losses caused by a bank’s failure. In view of this, how protected are Namibian bank depositors in case of a bank failure?
Florette Nakusera (FN): The establishment of the Deposit Guarantee Scheme in 2020 through the Namibia Deposit Guarantee Act (Act 16 of 2018) provides the protection for Depositors in Namibia against loss of their deposits in an event of bank failure. The Scheme is there to ensure that, should deposits held by any of the commercial banks in Namibia become unavailable, depositors will be compensated of their funds in a speedy and transparent manner.
OM: The report said the Deposit Guarantee Fund stood at N$16.2 million in 2022. Is this money meant to protect small depositors’ money in the event of a bank failure?
FN: Yes, The Namibia Deposit Guarantee Authority collects annual premiums from all member institutions. Such funds are invested as per the approved Investment Policy and Guidelines. As at 31 December 2022, the market value of the Deposit Guarantee Fund stood at N$16.2 million by the end of the reporting period, representing a significant increase from N$10.3 million the year before. The funds are meant for compensation of depositors in the event of member institution’s failure.
OM: What are the future plans of the NDGA in terms of growing the Deposit Guarantee Fund from N$16.2 million?
FN: The NDGA’s Strategic Plan which was launched on 12 April 2022 emphasized the needs for the NDGA to find mechanisms to grow the Fund. This is captured in the first strategic objectives of the institution. This will be done in line with the provisions of the governing Act. Section 26 of the Namibia Deposit Guarantee Act provides avenues through which the NDGA can grow the Fund. All such options will be explored as well as other mechanisms based on international best practices.
OM: How protected would SME Bank depositors have been had the Namibia Deposit Guarantee Authority been established by then?
FN: It is difficult to speak about what would have been. The Namibia Deposit Guarantee Authority was fully operationalized on 1 February 2020. The scope of the Authority therefore only commences from the date the institution became effective. Therefore, depositors whose deposits became unavailable before the establishment of the NDGA will not be compensated by the Authority. But one can only imagine that if the NDGA existed before the failure of the SME Bank, compensation would have been done in line with the provisions of the Act.
OM: In the event, one of Namibia’s big commercial banks failed, how adequately would small depositors be protected?
FN: In an event where one of the member institutions of the Deposit Guarantee Scheme fails, depositors will be compensated up to the coverage limit of N$25 000, in line with the Governing Act, Determinations, regulations, policies and procedures of the NDGA.
OM: What lessons have been learned from the failure of the SME Bank and what measures have been put in place to protect depositors next time?
FN: The SME Bank failure provides valuable lessons as far as the need to ensure that an effective deposit insurance is in place. It is important to point out that the consideration for the establishment of the Deposit Guarantee Scheme in Namibia commenced much earlier before the failure of the SME Bank, however the Act was only passed in 2018. In fact, the need for Namibia to undertake a feasibility study in consideration of establishing a Deposit Guarantee Scheme was advocated for in the Namibia Financial Sector Strategy (2011 – 2021) which was developed before the SME Bank came into existence. The consideration was largely informed by international best practices and many countries, both developing and advanced, have aggressively pursued the establishment of these safety nets over the past decade.
OM: Can we confidently say that small depositors in Namibia now have the required safety net and protection?
FN: Yes, we can confidently say that and the existence of the Deposit Guarantee Scheme in Namibia is that safety net and protection.
OM: Anything else of importance on the topic that you would wish to add?
FN: I wish to send a reminder to our Depositors out there that the guarantee for their deposits remain intact. Depositors should continue to deposit their funds with the commercial banks licensed to do banking in Namibia knowing that there is a Deposit Guarantee Scheme in place. Further, we would like to collaborate with the media in the dissemination of this information to all corners of the country in order for the depositors to continue to have trust and confidence in our financial system.
