The annual costs to fund the Corporation for Deposit Insurance (CoDI) and the Deposit Insurance Fund (DIF) will work out to R14 per qualifying depositor, National Treasury told Parliament’s Standing Committee on Finance on Wednesday during a presentation on the Financial Sector and Deposit Insurance Levies Bill and the related Financial Sector and Deposit Insurance Levies (Administration) and Deposit Insurance Premiums Bill.
However, this amount is based on the annual levy and premium that members of CoDI will have to pay. It does not take into account the “liquidity tier” that will fund the DIF.
CoDI, which was established in terms of the Financial Sector Laws Amendment Act, will administer the DIF, which will pay out depositors if a bank fails. The date on which the Act will take effect has yet to be announced.
Banks, co-operative banks and mutual banks will have to belong to CoDI. They will pay an annual levy to CoDI and a premium to the DIF.
Treasury said co-operative financial institutions will have to join CoDI at a later stage.
Members will pay about R41 million in annual levies, which will be used to cover CoDI’s operational expenses. However, the levy will apply only once CoDI becomes fully operational, which Treasury envisages will be on 1 April 2024.
In the meantime, the South African Reserve Bank (SARB) will cover the start-up and operational costs of CoDI, which is a subsidiary of the bank.
Treasury forecasts that members will pay annual premiums of more than R548m.
The DIF will cover more than 43 million depositors and R274 billion in deposits. According to Treasury, the cost of the annual levy works out to R1 per qualifying depositor, while the annual premium will cost R13 per qualifying depositor.
However, Treasury said these numbers were based on a survey conducted in 2014, and figures based on data from 2021 would be available at the end of this month.
Treasury told the committee that “international best practice” was for a deposit insurance fund to be built up only through premiums. However, to reduce the premium burden on members, it had devised a “unique” funding model in terms of which the DIF would be funded through premiums and a liquidity tier.
The liquidity tier will see members making a loan or a deposit – Treasury said it has yet to decide which – that will be interest-bearing, in order to build up the fund, particularly during its first five years. The liquidity tier will be reduced as funding from premiums becomes sufficient to cover deposits.
PA forecasts collecting R500m in levies
The Prudential Authority (PA) envisages collecting levies, including the special levy, of R500m in 2022/23 in terms of the Financial Sector and Deposit Insurance Levies Bill. It will also collect R11m in fees.
Its operating expenditure will be R895m, of which R487m will go to remuneration and R99m for operational costs. A further R309m has been budged for indirect operational costs.
The PA will have an operating deficit of R385m. However, the SARB will continue to provide funding to make up the shortfall.
The table below provides a breakdown of the levies the PA proposes to collect by sector.
Figures have been rounded
Treasury said the PA will use most of the special levy, which will be paid for two years, to fund supervisory IT infrastructure that will “change” the way the PA interacts with the financial sector.
Luckily this will simply be passed onto the consumer.