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Don't pass insurance cost to depositors...BoG warns banks

By: Maclean Kwofi
Dr Ernest Addison - Governor, BoG
Dr Ernest Addison - Governor, BoG

The Bank of Ghana (BoG) is warning banks not to pass the cost of insuring deposits to customers in the form of increase in lending rates .

Instead, the central bank has urged banks to absorb the cost of insuring deposits as part of their cost of operations under the Ghana Deposit Protection Act, 2016 (Act 931).

Already there have been public concerns that introducing deposit insurance scheme will amount to raising the cost of banking operations, which would then be passed on to customers through increased interest rates.

But, the Project Coordinator of Ghana Deposit Protection Corporation, Mr Franklin Belnye, who was responding to the concerns, explained that insuring deposits would not bring additional cost to
customers because banks had been directed to absorb the cost as part of their operational cost.

According to the research department of the Millennium Financial Centre, as at May last year, there were 662 deposit taking institution in the country.

The institutions included 34 universal banks, 37 savings and loans companies, 22 finance houses, 140 rural/community banks, and 429 microfinance companies.

Earlier, Mr Belnye, who was speaking on the topic: Rationale for Deposit Protection in Ghana at the first edition of the GRAPHIC BUSINESS/STANBIC BANK breakfast meeting on Tuesday, February 6 in Accra, explained that the premium that would be paid to the yet-to-be established Ghana Deposit Protection Corporation (GDPC) was expected to be paid by the banks based on the eligible deposits that have been mobilised, hence, there would not be any additional cost to customers.

Unlike other countries that have incorporated clauses in their deposit protection laws which bar banks from passing the cost to customers, the project coordinator said there was no need for Ghana to establish such clauses which would be difficult for it to enforce.

“I have been informed that Nigeria, for example, have a clause in its Deposit Protection Act which bars banks from passing the cost of insuring deposits to customers, but sometimes there is no need to make laws which will be difficult to implement,” he said.

Mandate of the act
The Ghana Deposit Protection Act came into force on October 11 last year. The Act applies to banks and specialised deposit taking institutions licensed by the central bank.

The Act provides the framework for the establishment of the Deposit Protection Scheme, the Deposit Protection Fund, and the Deposit Protection Corporation.

The key responsibility of the scheme is the reimbursement of insured deposits. It does not play any role in prudential risk minimisation and bank resolution functions. 

Data from the International Association of Deposit Insurers (IADI) indicates that there are currently 126 deposit schemes operating across the globe with 84 of them being members of the IADI.

As at September 2017, about 29 countries were in the process of implementing deposit schemes.

Public education on hold
Mr Belnye observed that public education about the scheme had been put on hold to pave the way for the corporation to address some key issues relating to the act.

“These issues which involve a release of a €13 million from the German Government and the passage of some amendments made in the Deposit Protection Act which is before Parliament,” he said.

He added that once those issues were resolved, the deposit insurance scheme was expected to take effect.