ABOUT 40% of the Deposit Protection Corporation (DPC)’s revenues are gobbled up by operating expenses, mostly staff costs, crippling the institution’s ability to effectively carry out its mandate, the corporation’s latest report shows.
By Taurai Mangudhla
The funding needs of the corporation are aimed at paying deposit compensation claims in the event of a bank failure, build a reserve fund from which future deposit compensation claims will be paid and meet its day-to-day operating expenses. The maximum deposit protection cover per depositor per contributory institution remained pegged at US$500 in 2015. This means depositors were only assured of getting US$500 in the event a bank crumbles. The figure was increased to US$1 000 recently.
Operating expenses totalled US$2,9 million with staff costs amounting to US$2 012 844 down from US$2 104 000 prior year against total revenues of US$7,7 million. The staff costs represent about 26% of total income for the year under review, according to the DPC’s 2015 annual report.
The DPC was in 2015 unable to pay US$500 to 100% of the claims, but is chewing US$2 million in salaries and other staff benefits.
Of the staff costs, key management compensation gobbled US$813 985 comprising US$767 145 in salaries and other short-term employee benefits plus a US$46 840 defined contribution plan. In 2014, management compensation was US$930 510.
The corporation has provided several of its key managerial personnel with short-term loans at a rate of 6% per annum.
The DPC’s operations are largely financed by premiums levied on member institutions comprised of all deposit-taking institutions registered in terms of the Banking Act [Chapter 24:20] and the Building Societies Act [Chapter 24:02].
The flat premium rate remained at 0,2% of an institution’s annual average deposits, payable quarterly.
Total number of deposit accounts fully covered was US$1,2 billion in 2015 which was 88,2% according to the DPC report while the value of deposits in fully covered accounts was US5$51,8 million which is a paltry 1,3% while the total value of insured deposits is merely 3,3%.
This comes as DPC directors, according to the report, have concluded that the preparation of the 2015 financial statements on a going concern basis is still appropriate, but with reservations.
“However, the directors believe that under the current economic environment a continuous assessment of the ability of the corporation to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements,” reads part of the DPC report.
“As at 31 December 2015, the corporation’s current assets exceeded current liabilities by US$ 11 402 641(2014: US$ 6 014 433). Net current assets net of exposures relating to depositors of troubled institutions not provided for (refer note 4.2 and note 19) were US$ 5 285 277 (2014: 182 232 net liability),” the DPC report reveals.
“In the event that the corporation is faced with a huge pay-out which is in excess of available funds, there are three options that can be pursued individually or collectively.”
In terms of the DPC Act, there is a provision to levy supplementary contributions from all banking institutions to fund the shortfall. The Act also gives the DPC ancillary power to borrow moneys for the purposes of the DPC Fund.
In a systemic crisis, that is, a situation where a number of large banks fail at the same time and the fund level is inadequate even after invoking the above options, then funding will be provided by the Ministry of Finance and Economic Development.