Bank depositors’ money protected from next year

Bank depositors’ money will be protected from 1 April next year after the finance minister established a deposit insurance body recently. This will protect consumers against waiting months for their deposits to be paid back after a bank collapses, as happened with VBS a few years ago.

The South African Reserve Bank (Sarb) established South Africa’s first deposit insurance body, the Corporation for Deposit Insurance (Codi), to protect bank depositors and bring further confidence to a resilient financial sector and Finance Minister Enoch Godongwana recently published the commencement schedule as part of the implementation of the Financial Sector Laws Amendment Act. 

According to Kuben Naidoo, deputy president of the Sarb, Codi’s primary responsibilities are to establish, maintain and administer a deposit insurance fund to protect the banks’ covered depositors and inform them of its benefits and limitations should a bank be closed.

While Codi is a statutory body and a subsidiary of the Sarb, it will have an independent board to manage and oversee its affairs. It is part of the Twin Peaks regulatory reforms following the 2008/09 global financial crisis. The board must still be appointed.

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Protecting depositors’ money

The establishment of Codi supports the Sarb’s mandate to protect and enhance financial stability by monitoring the financial environment and mitigating systemic risks that might disrupt the financial system. 

Codi is already collaborating with financial institutions and other stakeholders, including the World Bank, to ensure a smooth implementation of the deposit insurance scheme. It is also developing secondary legislation that will specify the cover limit for depositors.

Naidoo says this limit will be R100 000 for deposits at any bank in the country. He points out that VBS depositors waited months to get their money and says it is important to prevent major losses when a bank fails. Codi will be financed through a levy on deposits at banks.

“With Codi depositors will get their money back within two to three weeks and this will contribute to the stability of the financial sector,” he says.

The secondary legislation will be passed through a parliamentary process and be published by National Treasury this year as it is required for Codi to become operational in 2024.