The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

THE FUND to protect Bahamian bank depositors had reached just 45.8 percent of the minimum $160.775m target recommended by the International Monetary Fund (IMF) at year-end 2021.

The Deposit Insurance Corporation’s 2021 annual report, tabled in the House of Assembly yesterday, revealed that the protection fund was worth some $73.644m at that year’s end. This was equivalent to 0.9 percent of insurable deposits within the Bahamian banking and credit union system, as compared to the minimum 2 percent threshold suggested by the Fund in its 2019 Financial Sector Assessment Programme (FSAP) report on The Bahamas.

“As at December 31, 2021, the Deposit Insurance Fund (DIF) stood at $73.6m, consisting of premiums paid by member institutions and income from investments in government bonds,” the report said. “Since 2017, the DIF has grown at an average rate of 10 percent per annum. Based on the $8bn in insurable deposits held by member institutions at end-2021, the DIF represents the equivalent of approximately 0.9 percent of insurable deposits and 2.8 percent of insured deposits.

“In 2019, following the IMF’s FSAP mission to The Bahamas, a recommendation was made for the Deposit Insurance Corporation to achieve a medium-term target fund size with a coverage of at least 2 percent of insurable deposits, increasing closer to 4 percent over the longer-term.”

The DIF fund was at year-end 2021 some $87m below the IMF’s recommended 2 percent minimum threshold, and some 77 percent or almost $248m under the 4 percent target. “Further, the IMF’s technical assistance mission in October 2021 recommended strengthening the funding arrangements by establishing a higher target fund size, appropriate premiums rates of levies to meet that target, and a back-up credit facility from the Ministry of Finance or Central Bank,” the report said.

“Thus, a focal point of the DIC’s strategy in 2022 will be to finalise a review of the adequacy of the DIC fund target ratio and to determine the necessary premium levels to achieve the appropriate funding target ratio.” John Rolle, the Central Bank’s governor, who chairs the DIC, said the regulator was also working to “develop a recovery and resolution framework for The Bahamas”.

The DIF covers Bahamian dollar deposits up to a value of $50,000. It was created after the collapse of Gulf Union Bank (Bahamas) in the late 1990s. Payouts are made to insured depositors only when a member institution has been closed as a result of action taken by the Central Bank.

The DIC was established under the Protection of Depositors Act 1999, as amended by the Protection of Depositors (Amendment) Act 2020. It has the power to put levies on member institutions upon the advice of the Central Bank and provide capital for a bridge institution and financing in the amount of insured deposits to an entity that acquires the business or all or part of the assets and liabilities of a member institution which has been placed under statutory administration by the Central Bank.

The premiums paid by member banks and credit unions are equivalent to 0.05 percent of the average sum of deposits insured.