Govt, BoG to contribute €20m towards deposit protection scheme
The government and the Bank of Ghana (BoG) are expected to contribute €10 million each as seed capital towards the establishment of the Deposit Protection Scheme (DPS).
The DPS seeks, among other things, to safeguard the savings of individual depositors in the country in order to build trust in the formal banking system, and to contribute to the stabilisation and development of the financial system in Ghana.
A report of the Parliamentary Committee on Finance on the Bill that aims to establish the DPS indicated that, to ensure the continuous flow of funds into the scheme, its members, which include banks and deposit-taking institutions, would be expected to contribute an initial one-off premium amounting to 0.1 per cent of the required minimum paid-up capital and annual premium.
It said the scheme would also be permitted to invest its funds, however, to guarantee the managers of the funds did not deviate from the core object of the scheme, provisions had been made to ensure its investment policy adhered to the principles of safety and liquidity over returns.
Deposit protection Bill
The Ghana Deposit Protection was presented to Parliament and read the first time on behalf of the Minister of Finance by his Deputy, Mr Cassiel Ato Forson, in May, 2015.
The Bill, which has undergone its second reading and awaiting passage seeks to establish a Deposit Protection Scheme to protect a small depositor from loss incurred as a result of the occurrence of an insured event and to support the development of a safe, sound, efficient and stable market-based financial system in the country.
Observations of the committee
As part of the observations of the committee on the Bill on coverage limit, an insured depositor who deposits with a bank would recover up to GH¢5,000 whiles a depositor of a specialised deposit-taking institution would recover up to GH¢1,000.
The committee explained that though the threshold may seem low, it was meant to protect small depositors who ordinarily constituted majority in many deposit-taking institutions and the vulnerable in the society.
It said a higher threshold would mean high premium which would eventually be passed on to the depositor in the form of service charges and interest.
Importance of the Bill
The Chairman of the Finance Committee, MrJames Avedzi, said the insurance that would be established under the Act would protect small depositors in the event of a financial institution becoming insolvent or distressed.
He said the existence of a deposit insurance would provide depositors with clarity, reassurance and confidence, thereby promoting financial stability.
He explained that like any other business, banks and other financial institutions could fail, however, depositors knowing that their savings were protected against failure made them confident about keeping their savings in the banks and other financial institutions.
He believed that would help keep the financial system strong and beneficial to all.