BY MTHANDAZO NYONI DEPOSIT protection schemes have emerged as a vital cog in boosting confidence in national banking systems, while stemming runs on savings, Finance and Economic Development minister Mthuli Ncube said yesterday.
The Treasury boss was the keynote speaker at the International Association of Deposit Insurers (IADI) Africa regional committee conference, which kicked off in Victoria Falls yesterday.
He said economies survived on savings — the funds that banks deploy for crucial requirements like bankrolling productive sector investments.
However, markets can only be guaranteed of healthy savings if depositors get firm undertakings that funds kept at banks would be safe, said the minister.
“Deposit protection helps to foster confidence and hence encourage savings as depositors will have peace of mind knowing that their money in banks (will be) safe, and in the event of bank failure, they will be reimbursed,” Ncube told delegates.
The Finance minister has first-hand experience of the tragedies that rock banks once trust and confidence fizzle out.
He was in charge of the financial services behemoth, Barbican — which he established before a spate of bank failures shattered markets between 2004 and 2008, triggering the collapse of several institutions.
Barbican was not spared and Ncube left the country.
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Zimbabwe’s economy has been volatile since then.
“Deposit protection plays a key role in protecting the financial sector from risks such as bank runs, which can cripple financial intermediation and derail the recovery and sustainable growth of the economy,” Ncube.
“There is no economy that can achieve sustainable economic development without having a pool of funds to invest,” Ncube said.
He said the deposit protection scheme in Zimbabwe had instilled confidence in the banking sector.
This ensured financial stability and contributed to economic stability, he added.
“Mobilisation of savings in the banking sector due to this confidence induced by the deposit insurance scheme enables banks to play their intermediation role. This is demonstrated by the continued banking sector support to the productive sectors of the economy,” he said.
As at March 31, 2022, Ncube said 77,7% of loans were advanced to productive sectors of the economy.
Ncube told delegates that government was alive to risks faced by the Deposit Protection Fund and would continue supporting the Deposit Protection Corporation.
Reserve Bank of Zimbabwe (RBZ) deputy governor Jesimen Chipika said deposit insurers should follow developments in e-money, crypto currencies, stable coins and central bank digital currencies (CBDC), as the future of central banking was inextricably linked to innovation.
She said technological developments had potential to disrupt financial markets in a positive or negative way.
“Fintech is, therefore, an emerging issue of strategic importance for deposit insurers and regulatory authorities,” Chipika said.
“Deposit insurers should, therefore, closely monitor evolutions in e-money, crypto currencies, stable coins and central bank digital currencies. The future of central banking is inextricably linked to innovation. In this regard, the RBZ has approved the admission of two technology firms into the Fintech Regulatory Sandbox (the Sandbox). This shows RBZ’s commitment to promoting responsibility in the country,” she added.
Chipika said the central bank also issued a risk-based guideline in May 2021 on cyber security, to mitigate against the increase in cyber risk in order to promote financial stability, inclusion and integrity.
“Pursuant to government’s announcement in November 2021 on its preference to introduce central bank digital currencies as opposed to cryptocurrencies, the RBZ is actively exploring the feasibility of adopting a Zimbabwean CBDC,” she said.
DPC board chairperson Agmos Moyo said deposit insurers and other regulatory authorities had to adjust their current business strategies and policies to overcome internal and external ramifications brought about by the COVID-19 pandemic, climate change and the digital revolution.
“Deposit insurance is an important component of the safety net whose players comprise the function of the lender of last resort and prudential regulation and supervision. The safety net’s role is the promotion and maintenance of financial stability,” Moyo said.
“This is critical in the growth and effective functioning of national economies. Deposit insurance schemes are set up in order to serve public policy objectives. How well they contribute to financial stability is determined by how well they co-operate and collaborate with the other components of the safety net.”
The conference is running under the theme — Building Resilience for Deposit Insurance Systems: The New Normal.
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