November 13, 2023
Have you ever wondered what will happen to your bank deposits if your bank failed? Here’s what.
Your deposits
Your deposits are the funds you have lodged with your bank or specialised deposit-taking financial institution (SDI) as a fixed deposit or in a savings or current account.
Deposits (including yours) are the main source of funding for banks and SDIs in Ghana (FIs). According to the Bank of Ghana’s Monetary Policy Report for September 2023, your deposits are part of the aggregate deposits of GHS 190 billion held by all FIs in Ghana as at August 2023 (an increase from GHS 165.6 billion as at end of December 2022).
As at the date of this note, the FIs comprise the licensed and existing 23 banks and 315 SDIs (made up of 25 savings & loans companies, 11 finance houses, 147 rural & community banks, and 132 deposit-taking microfinance institutions).
Worst case scenario
At the risk of causing fear and panic, let’s assume you just heard that your FI has collapsed i.e. the Bank of Ghana has revoked its licence and appointed a receiver or liquidator over the FI because it is insolvent or cannot pay its debts as they fall due. This would immediately mean you no longer have access to your deposits i.e. you cannot electronically or manually transfer or cash out any portion of your deposits. It would also typically mean that the FI may not have sufficient funds to fully pay all its depositors (including you).
What happens? Your next move would traditionally be limited to filing a claim with the receiver to recover your deposits and waiting in the queue of creditors of the FI, hoping that the receiver gets sufficient funds from the good assets of the FI so you are paid fully or, at least, a substantial portion of your deposits. You would also hope for a bail-out package from the government or the regulator to augment any insufficient funds.
Well, if you did not know, your options have been enhanced since 30 September 2019. Here’s how the process would go now.
Deposit insurance
Your eligible deposits are now automatically insured under a statutory deposit protection scheme (the DP Scheme) established under the Ghana Deposit Protection Act, 2016 (Act 931) (as amended by the Ghana Deposit Protection Amendment Act, 2018 (Act 968)) (the GDP Act) and administered by the Ghana Deposit Protection Corporation (the GDPC).
As a result, your first recourse if your FI collapses is to be reimbursed by the DP Scheme up to a guaranteed amount in respect of your eligible deposits with the FI.
You are guaranteed a reimbursement of up to GHS 6,250 from the DP Scheme if your eligible deposits are with a bank. The guaranteed reimbursement will be up to GHS 1,250 if your eligible deposits are with an SDI.
Are your deposits considered eligible deposits? All deposits with all FIs are actually considered eligible deposits except deposits:
- belonging to an FI, a pension fund, a retirement fund, a collective investment scheme, a local government, the central government and/or an administrative authority
- that have been used as security for a loan provided by an affected FI
- whose depositors cannot be identified
- that have been frozen by a court order
- that are held in a foreign branch or subsidiary of the affected FI
- belonging to the directors or key management personnel of the affected FI (including those that worked there within the 3-year period leading to the revocation of licence)
- belonging to the external auditors (or any of its partners or managers) of the affected FI (including auditors who were engaged by the FI within the 3-year period leading to the revocation of licence)
The process for reimbursements under the DP Scheme is as follows:
- the Bank of Ghana informs the affected FI, the GDPC and the public of the revocation of the licence of the affected FI and the appointment of a receiver or liquidator for the FI
- the receiver or liquidator of the affected FI submits data for the calculation and payout of the insured deposits
- the GDPC verifies and determines the reimbursement amounts (primarily based on the data submitted by the receiver or liquidator)
- (at any time after the 6th day of the Bank of Ghana announcement) the GDPC announces the commencement of (and modalities for) the reimbursement on its website, in a minimum of 2 daily newspapers (with national circulation) and on radio and television
- the payment period lasts for 30 calendar days from the date of the GDPC announcement
- any person with eligible deposits may submit a claim and get paid within the 30-day period. However, any person who is unable to make a claim within that period still has up to 5 years (after the expiry of the 30-day period) to make a claim. There is no limitation for claims by executors or administrators of deceased depositors or next friends of legally incompetent depositors
If such reimbursement from the DP Scheme is not sufficient to cover all your deposits, your next recourse is to file a claim with the receiver of the FI. Such a claim (which is not affected by deposit eligibility criteria under the DP Scheme) is close to the bottom of the waterfall of payments to be made by the receiver but ranks ahead of claims by unsecured creditors and subordinated debt holders of the FI.
More about the DP Scheme
The DP Scheme became operational on 30 September 2019. It is mandatory for all FIs to be members of the DP Scheme and pay premiums regarding eligible deposits. According to the website of the GDPC, all the FIs have signed up and are paying the premium.
The initial capital of the DP Scheme was required to be (and has been) provided by the Government of Ghana and the Bank of Ghana. Beyond that, the DP Scheme is funded primarily by premiums paid by the FIs and returns on investments made by the GDPC. Each FI is required to pay an initial premium (of 0.1% of its required minimum capital) and an annual premium (ranging from 0.3% to 1.5% of its total deposits less any ineligible deposits).
The DP Scheme is required to invest the premiums and other funds received to accrue sufficient funds to reimburse depositors of eligible deposits if an FI fails.
Into the future
The DP Scheme has not yet been tested. There has been no FI collapse since the scheme became operational. It remains to be seen how the preparedness advertised by the GDPC in its annual reports would play out. The GDPC has indicated that it has, among others, appointed standby payout banks and undertaken a simulation to test its ability to roll out a payout process within 5 days of an FI failure.
According to the GDPC’s 2022 annual report and financial statements, the closing balance of the funds available for reimbursements under the DP Scheme was GHS 676.2 million as of 31 December 2022 (after making a loss of GHS 137 million on its investment in Government of Ghana securities because of the government’s domestic debt exchange programme).
It is hoped that, going forward, the GDPC will diversify its investment portfolio to avoid or reduce investment losses. It is also hoped that the GDPC will activate its statutory power to apply differential premium to FIs (which have more liabilities and a higher risk profile) to shore up revenue.
