FCA cover will enhance confidence, bankers say

15

THE Bankers Association of Zimbabwe (BAZ) has welcomed the Deposit Protection Corporation (DPC)’s bid to cover foreign currency denominated accounts (FCAs), saying this would boost confidence.

Following the separation of depositor accounts into ZWL and FCAs in 2019, there has not been any explicit protection of Nostro funds in the country.
The DPC this week, said it has been consulting with stakeholders including BAZ, the Reserve Bank of Zimbabwe (RBZ), and the Finance ministry to figure out the modalities of protecting deposits.

“The DPC hereby advises of the commencement of the explicit deposit protection of FCAs and, or Nostro FCAs from December 31, 2021,” the statutory body said in a circular this week.

BAZ president Ralph Watungwa said this would be “in line with global banking practices and would give customers the protection and confidence that they are always looking for when they deposit their funds with banks”.

RBZ governor John Mangudya says efforts to reinstate cover on the hard cash deposits are meant to encourage the circulation of the US$1,5 billion-plus, currently sitting in FCA accounts, “to promote growth and development”.

It also comes as foreign exchange scarcity has lately caused disbursement delays on the central bank’s auction system, a situation that has destabilised the ZWL, which had held steady for more than six months, with inflation that had come down from 838 percent in July 2020 to 50 percent in August 2021, rising to 52 percent in September.

In his mid-term monetary policy statement in August, Mangudya said the circulation of the hard cash currently lying idle in Nostro accounts would help alleviate exchange scarcity in the country.

Meanwhile, DPC said the maximum cover will be US$ 1 000 per deposit class, per banking institution, and US$500 for accounts with microfinance institutions. It however said the cover on deposits with micro-lenders would only start in January next year.

“Compensation to FCA holders shall be in foreign currency in the event of the occurrence of a compensation event or bank failure.
“Deposit protection of FCAs or Nostro FCAs shall not be applied retrospectively. It, therefore, shall not apply to any liquidation that is currently underway.”
newsdesk@fingaz.co.zw