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BB deposit insurance fund grows

Shahin Howlader
23 Jan 2022 00:00:00 | Update: 29 Jan 2023 16:24:39
BB deposit insurance fund grows

Although the depositors are still grappling with getting an adequate amount of compensation, the Deposit Insurance Trust Fund (DITF) of the Bangladesh Bank has increased gradually amid the coronavirus pandemic.

Premium collected from insured banks and all other receivables are deposited into the DITF, in accordance with the provision of the Bank Deposit Insurance Act 2000.

Deposit Insurance Systems is an institutional initiative to protect depositors against the loss of their deposits in the event that a scheduled bank goes into liquidation.

All scheduled banks or commercial banks, including the branches of foreign banks functioning in Bangladesh, are insured by the Deposit Insurance Systems.

Within a year, the fund increased by Tk 1,513 crore, reaching Tk 11,628 crore at the end of December 20 of 2021, which was only Tk 10,115 crore at the end of December 2020, according to the Bangladesh Bank’s Deposit Insurance Department sources.

A Bangladesh Bank official stated that earnings from DITF investment have increased gradually, which has been contributing to expanding the deposit fund.

Objectives of DITF

The fund protects small depositors and enhances public confidence and stability of the financial system. It also increases savings and encourages economic growth as well as enhances more propitious bank services.

What does DITF insure?

The fund insures all deposits, such as savings, fixed, current, and recurring.

The Bangladesh Bank pays premiums against deposits as the controller organisation under the Bank Deposit Insurance Act while the premium is determined on a half-yearly basis, January-June and July-December sessions.

On the basis of the financial health/CAMELS rating of the banks, the premium rate is determined in three categories – 0.1 per cent for “problem” banks, 0.09 per cent for “early warning” banks, and 0.08 per cent for other banks.

In Bangladesh, deposit insurance was introduced in August 1984 while the amount of insurance coverage was Tk 60,000, which was later extended to Tk 1 lakh.

Depositors will get the highest amount, Tk 1 lakh, within 90 days if any scheduled bank goes into liquidation, and the rest of the money will be paid subsequently according to the Bank Company Act.

The DITF is invested in the government treasury bond/bill and the income derived from such investment is also credited to the DITF account. Tk 11,518 crore was invested till December 20 last year, including Tk 5,718 crore in the five-year government treasury bond, Tk 5,607 crore in the 10-year bond, and Tk 193 crore in Sukuk bond.

At present, the fund is invested only in five-year and 10-year Bangladesh Government Treasury Bond (BGTB). Banks pay premiums in June and December each year.

Demand for increasing premium, insurance

Experts in the sector demanded an increase in premium and insurance benefits.

The central bank’s former governor Dr Salehuddin Ahmed told The Business Post insurance benefits for small and large depositors should be fixed separately while premium rates should also be increased.

“We can follow different aspects of deposit safety laws of other countries to resolve the matter,” he said.

Association of Bankers Bangladesh (ABB) Chairman and Eastern Bank Managing Director and Chief Executive Officer Ali Reza Iftekhar told The Business Post the fund offers an extremely low amount of compensation for the safety of depositors, which should be much higher.