A NATIONAL insurance scheme for bank deposits is now in operation and will be administered by the newly formed Perbadanan Insurans Deposit Malaysia (PIDM) or Malaysia Deposit Insurance Corp.
The scheme offers an explicit guarantee that depositors will get their money back in the unlikely event of a bank failure, and it replaces the implicit guarantee from the Government.
Almost all countries are introducing similar schemes or have done so. There are about 80 countries that have deposit insurance schemes, with about 20 others – including Singapore and Thailand – that are in the process of offering such coverage.
In announcing the scheme in Kuala Lumpur yesterday, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz told newsmen that it protected depositors and provided an incentive for banks to improve their risk management.
The incentive is there as the insurance premiums are the same for every bank for the first two years only but, in the third year, the rates will be adjusted such that banks that are more sound will pay a lower rate.
Zeti said the premiums were set very low and, as such, “we expect they will not be passed on to depositors.” Banks are expected to bear the costs.
The board appointments at PIDM were approved by the Finance Minister, who is also Prime Minister Datuk Seri Abdullah Ahmad Badawi.
Tan Sri Abdul Aziz Taha, who was Bank Negara governor from 1980 to 1985, is the PIDM chairman.
The PIDM board recommended, and Abdullah approved, the appointment of Jean Pierre Sabourin as its chief executive officer. Sabourin retired as CEO of Canada Deposit Insurance Corp (CDIC) six months ago and he is currently president of the International Association of Deposit Insurers.
Aziz said that under the scheme, deposits would be insured up to the limit of RM60,000, inclusive of principal and interest, per depositor per bank.
There will be separate, additional coverage of RM60,000 per depositor per bank for Islamic deposits, joint accounts (such as with spouse or child), sole proprietorships and partnerships. This will provide coverage for 95% of account holders in full and 35% of the value of total deposits.
He said all banks would have to pay the premiums from Sept 1. The premium rate is either 0.02% of a bank's total deposits or 0.06% of its total insured deposits. “The banks can choose either option, whichever suits them,” he added.
These are the rates this year and, for the four months till end-December, it is estimated that PIDM will receive premiums totalling RM30mil to RM35mil. The rate for next year, which has to be approved by the Finance Minister, will be announced towards year's end.
Sabourin said it was PIDM's objective to reimburse depositors quickly and resolve the bank's problems later. “Our target is to reimburse in two weeks. To provide public confidence, we would be talking weeks, not months or years,” he added.
It is understood that for the cautious depositor, his deposits could be fully insured for over RM2mil if he spreads his deposits across various accounts in all the banks. In practice, however, depositors are unlikely to do that due to the inconvenience.
Sabourin said that by the third year, PIDM would have designed a differential premium system. It will take two years to do so as it is a complex effort. It took the CDIC five years to devise such a system for Canada.
Deposit insurance corporations always started with a flat rate before working out a differential premium system, he added. So far, only about 10 countries have differential premium systems.
Fielding questions on certainty of payment, Sabourin said PIDM was “obligated by law to reimburse depositors regardless of the cause of failure of a bank. There are no exceptions.”
Aziz said no one could touch PIDM's funds for any other use. “The law requires that the funds are there for the day when the funds are needed. It's very simple. The funds can only be used for operating expenses and for reimbursing depositors,” he added.