Deposit insurance in Montenegro

1
Deposit insurance in Montenegro

• Predrag Markovic
• Managing Board President Deposit Protection Fund

2
Deposit Protection Law

• Law was adopted in 2003 (amendments in 2005)
• A protected event occurs in case of bankruptcy of
  a bank
• The amount of the guaranteed deposit is 5,000
  per depositor
• Deposits of legal and physical entities are
  guaranteed
• All the banks are obliged to provide deposit
  protection.

3
Excluded deposits

• Deposits of legal entities engaged in insurance
• Deposits of the budget of Montenegro and local
  government budgets
• Deposits of Off-budgets
• Deposits of pension funds
• Deposits of banks
• deposits of persons holding a banks shares
  entitled to more than 5 of votes at the bank
  shareholders meeting,

4
Excluded deposits

• deposits of bank general managers, members of
  bank management boards and persons who hold
  offices of director, deputy director and heads of
  the departments or other organizational entities
  in the bank, deposits of legal entities in which
  such persons have 10 or more participation in
  capital or voting shares, as well as deposits of
  their spouses or relatives in the straight or
  lateral lines of kinship, up to the second degree
  of kinship,

5
Excluded deposits

• deposits of persons responsible for audit,
• deposits of persons established in the report on
  control provided by the Central Bank of
  Montenegro as the persons that contributed to
  deterioration of the banks financial situation
  and
• deposits for which a procedure has been initiated
  for establishing their connections with the
  transactions or actions representing money
  laundering or financing terrorism

6
Protected deposit

• The total amount of all protected deposits of a
  depositor including the accrued interest on such
  deposits up to the date of the occurrence of a
  protected event.
• Such amount is reduced by the amount due by the
  depositor to the bank

7
Guaranteed deposit

• Guaranteed deposit amounts to 5.000 per
  depositor, regardless of the number and amount of
  deposits possessed by that depositor at a bank.
• The amount of the guaranteed deposit may be
  changed (increased) by amendments to the Law

8
Deposit Protection Fund

• Deposit Protection Fund is a legal entity
• Registered office of the Fund is in Podgorica
• In its activities of deposit protection the Fund
  is exempted from paying duties and fees
• The Fund is authorized to
• Determine the rate of the annual premium
• Collect initial and annual premiums
• Invest funds
• Pay guaranteed deposits

9
Managing Board of the Deposit Protection Fund

• The Fund is managed by the Managing Board of 5
  (five) members
• Managing Board is appointed by the Central Bank
  of Montenegro
• Term of office of the Managing Board members is 4
  years, except for the President and one member
  that have the term of office of 6 years

10
Resources of the Fund

• Provided from
• Initial premium
• Annual premiums
• Extraordinary premiums
• Revenues from investment of the Funds resources
  
• Donations
• Other sources.
• The Fund may issue securities

11
Initial premium

• Amounts to 0,3 of the total deposits but not
  less than 10.000 (this provision is in effect
  for the banks, that automatically became members
  of the Fund on the day of coming into force of
  the Law on Deposit Protection)
• Banks that on the day of coming into force of the
  Law were subjected to the measures of the Central
  Bank became the members of the Fund in October
  2007 and paid the initial premium in the amount
  of 0,3
• For new banks the initial premium amounts to
  10.000

12
Annual premium

• Paid in quarterly installments
• calculation base is the average of the total
  deposits determined on the last day of every
  month for the previous quarter
• Managing Board establishes the amount of the rate
  of the annual premium for every year in advance
  (current rate is 0.25)
• A differential premium may be introduced.
• Premiums cannot be recovered.

13
Fund Financing in Case of Insufficient
Resources

• Charging extraordinary premium which, together
  with the annual premium may amount to 1,5 of the
  total deposit of the bank
• Loan from domestic and foreign banks
• Loan from the budget of the Republic
• Issuing securities

14
Utilization of the Funds Resources

• Payment of the guaranteed deposits
• Payment of the principal and interests of loans
• Funds operating costs.
• In line with the Investment policy of the Fund
  the resources may be invested in
• Securities issued by the Republic of Montenegro
  or banks, financial institutions or high ranking
  state
• Deposits in the high ranking banks.

15
Payment of guaranteed deposits

• Payment has to start at latest within 60 days and
  it has to be completed within 90 days from the
  day of the protected event
• Bankruptcy Administrator submits the data on
  protected deposits and depositors of the bank in
  bankruptcy within 15 days from the day of
  bankruptcy
• Managing Board passes the Decision on terms,
  conditions and procedure of payment of the
  guaranteed deposits

16
Payment

• Decision on the choice of the bank and term of
  payment is published in the media
• Fund has provided a software for establishing the
  amounts of the guaranteed deposits of the
  deponents of a bank in bankruptcy
• Fund passes individual decision on excluded
  deposits
• The bank submits to the Fund the data on the
  payments of guaranteed deposits.

17
Claims of the Fund from a bank in bankruptcy

• Fund submits to the Bankruptcy Administrator a
  report on the paid guaranteed deposits
• Such report is the basis for claims of the Fund
  from the banks in bankruptcy
• Fund is in the fifth line of priority in payment
  of claims of a bank in bankruptcy.
• Depositors keep the position in the order of
  payment, as if there was no payment of the
  guaranteed deposit

18
Current situation

• All the banks (11) are included in the deposit
  insurance scheme
• Fund has been providing deposit protection
  according to the Law since January 1st 2006 god
• Resources of the Fund amount to approximately
  11.5 million , 2.5 million of which are the
  funds of the German Government donation.

19
Marketing

• The banks are obliged to disclose the Funds logo
  in general terms of operation, in individual
  contracts and in a visible place in the business
  premises with an information sign that reads
  The Bank is a member of the Fund for Deposit
  Protection and the bank depositors deposits are
  protected in compliance with Law on Deposit
  Protection up to the amount of EUR 5,000.
• Fund made flyers with the basic data on deposit
  protection and distributed them to the banks
  members of the Fund,
• Fund has prepared and it broadcasts the TV spot,
  promoting deposit protection
• Fund is the member of the European Forum of
  Deposit Insurers- EFDI.
• Fond za zatitu depozita Montenego Podgorica
  Miljana Vukova bb. Tel. [phone]
  htp//www.fzdcg.org fzd_at_cg.yu

20
TV spot of the Fonda
21
Fund

• The Fund has 3 employees and the President of the
  Managing Board of the Fund
• Assets of the Fund are given to the Central Bank
  of Montenegro for management on the basis of the
  international tender for selection of Asset
  manager
• In the current situation of the operation of the
  banks no protected case occurrence is
  envisaged.