Your USD deposits at the bank are not protected

Members of the National Mattress Bankers Union of Zimbabwe won’t be too surprised by this… It appears that if you make a USD or Forex deposit into your NOSTRO account there is nothing to protect you as a depositor if the bank goes belly up. Now the organisation that deals with this primarily is the Deposit Protection Corporation (DPC) but it works in tandem with the Reserve Bank of Zimbabwe (RBZ). If you scan through the DPC’s website under “Deposit Protection” there is no provision set for NOSTRO/USD accounts.

The Deposit Protection Corporation (DPC)

The DPC was set up by the government to protect the money that you place in your bank account. Its primary objective/function is to protect depositors against the loss of their insured deposits when put into a member institution or bank. Think of it as insurance for the money that you put into your account.

The Corporations objectives to the transacting public are:

• Protection of depositors by providing compensation in the event of failure of a member institution.
• Contributing to the stability of Zimbabwe’s financial system.
• Enhancing public confidence in the financial system by establishing a framework for the resolution of failing or failed member institutions.
• Administering the Deposit Protection Fund.
• Enhancing competition in the financial sector by creating a level playing field through guaranteeing depositor reimbursements for both big and small member institutions.

So if you for example have deposited money into a member bank or financial institution and for whatever reason, the establishment goes under the DPC is there to compensate account holders. The terms for this are sums up to ZWL$10,000 (just over US$100) per depositor per bank and ZWL$500.00 (about US$6) for deposit-taking microfinance institutions.

At this point, you’ll be wondering how the DPC gets the money to reimburse depositors. Well… the Corporation collects an annual levy of 0.2% of average deposits which is paid on a quarterly basis. The levy is not at the depositor’s expense but it is down to the financial institution to meet that obligation.

What the PDC covers and what it doesn’t

Covered by DPC	Not covered by DPC
time/ fixed deposits	securities purchased by contributory institution on behalf of the depositor
demand deposits	interbank deposits
savings deposits	government deposits, local or foreign
interest accrued and/or payable on all shares: -shares in a building society (class B&C shares), other than capital shares, deferred shares or preference shares;  and any other liability or financial instrument as may be specified by the Corporation from time to time by notice in the Government Gazette.	a deposit that is not payable in Zimbabwe
	contents of safety deposit boxes
	unit trust/managed funds
	debentures issued by a contributory institution
	deposits of executive management, board members or shareholders of a contributory institution
	negotiable certificates of deposit
	bankers acceptances
	repurchase agreements
	capital shares
	deposits deposited by other domestic or foreign banks on their own account
	drafts or managers cheques issued to trade creditors
	any other liability or financial instrument as may be specified by the Corporation from time to time by notice in the Government Gazette

Deposit Protection Corporation

And keen-eyed readers will now follow up with the question, “what if the sums deposited exceeds the limit?” To this, the DPC will payout after the liquidation (selling off) of the assets of the bank or institution that has gone under. Like with anything that is insured it isn’t a perfect system but at the very least there is some coverage.

DPC member banks and financial institutions

When a bank runs an ad on TV there is usually the statement at the end which says “A member of the Deposit Protection Corporation (or Scheme)“. As you would have already guessed all banks are part of the DPC network.

Commercial Banks	Building Societies	Merchant Banks	Deposit-taking Microfinance Institutions	Savings Bank	Development Institutions
AFC Commercial Bank	CBZ Building Society	Tetrad Investment Bank	Africa Century Limited	People’s Own Savings Bank (POSB)	Infrastructure Development Bank of Zimbabwe (IDBZ)
BancABC	Central Africa Building Society (CABS)		Success Micro-Finance Bank Limited
CBZ Bank Limited	FBC Building Society		Getbucks Microfinance Bank
EcoBank	National Building Society Limited (NBS)		Lion Microfinance Bank
FBC Bank Limited	ZB Building Society		EmpowerBank Limited
First Vapital Bank Limited			Zimbabwe Women’s Microfinance Bank Limited
MetBank
Nedbank Zimbabwe
NMB Bank Zimbabwe
Stanbic Bank Zimbabwe
Standard Chartered Bank
Steward Bank
ZB Bank

Membership isn’t something that banks do because they are altruistic, but it is because it is mandated by law under the Banking Act (Chapter 24:20), Building Societies Act (Chapter 24:02), People’s Own Savings Bank (POSB) Act (Chapter 24:22), Infrastructure Development Bank of Zimbabwe (IDBZ) Act   (Chapter 24:14) and Micro-finance Act (Chapter 24:29).

Its all local currency but nothing USD or forex deposits

Now we arrive at the meat of the matter. If you peruse through the DPC’s website under its functions and powers you won’t see any mention of USD, forex or NOSTRO accounts. This is strange because we have been in two eras where the USD and currencies like the South African Rand were anointed as legal tender in Zimbabwe.

This means that if you a bank is to go belly up there are no guaranteed that you will get your forex back. As opposed to the local currency where the DPC and RBZ have ample provision to protect depositors.

I may have been lenient when I said that we have been in two multicurrency eras. To put that time frame into perspective it has been a decade since we have been allowed to use USD and other currencies (on and off) in Zimbabwe but the authorities never for a moment thought to protect that money.

Earlier on I joked about Mattress Banking but it’s a real thing. People are very reluctant to put their hard-earned USD into the financial system and this is one of the major glaring holes that prompts people to risk being robbed at home than to trust the financial establishment.

The situation is even funnier when we look at the RBZ’s announcement yesterday that proclaimed Interest Rates for USD and ZWL$ deposits. Who in their right mind is going to put their forex into the financial system if there is no protection for it?

A friend told me yesterday that the authorities are always trying to build a house roof first. When I heard that I laughed because of the imagery it invoked but, to be honest, it’s 100% true. Whatever plans they have going they often forget a key factor or facet of Zimbabwe’s economic quagmire.

Who is to blame, DPC, Ministry of Finance, or RBZ?

At this point, it would be easy to blame the DPC but we have to remember that it is just a cog in the machinery of the financial authority. Its mandate is to protect depositors not to set policy. That falls to the Reserve Bank of Zimbabwe and the Ministry of Finance.

And for any of you who are wondering if the DPC actually does what it is the answer is yes. I might lose those of a certain age because the names Trust Bank, Interfin Bank and AfroAsia Bank might not be familiar with younger readers.

All those banks went belly up and as you can imagine that pulled in cash that was stored in them was compromised. To this end the Deposit Protection Corporation says it has been compensating depositors.https://www.facebook.com/plugins/video.php?height=314&href=https%3A%2F%2Fwww.facebook.com%2FDpcZw%2Fvideos%2F376137856861229%2F&show_text=false&width=560&t=0

It’s worth mentioning that the payouts aren’t a simple process and the max ZWL$10,000 is probably enough to cover most account holders. However for businesses and those who have large sums deposited they might not get back the sum they deposited.

What did the Deposit Protection Corporation say?

We reached out to the DPC to understand its position on the matter of USD deposits and NOSTRO account coverage. And this is what the Corporation had to say:

“We think it is in the best interest of Depositors and the banking system in general that we provide cover to nostro fca deposits as they constitute more than 50% of the deposits. This will go a long way in boosting public confidence in the banking system. We have engaged our principals on the matter and await their policy guidance”

Again this isn’t to lay blame on the DPC, they are just the front end of this operation. However, it’s really concerning that it has taken years for the authorities to finally come around to protecting forex deposits.

You should also check out:

Finance Minister Mthuli Ncube said that the government had a budget surplus of ZWL$9.8 billion in Q1 2021. Now, that’s just over US$100 million (by the RBZ auction rate) and that’s a lot of money. So we discussed what a budget surplus is, if it is a good or bad thing in the Zimbabwean context, and how the government could possibly use all that money.-techzim