Consumers can rest easier after SARB launches CODI to safeguard depositors in case of bank failures

Consumers can rest easier after SARB launches CODI to safeguard depositors in case of bank failures

Consumers can rest easier about the safety of their money after the South African Reserve Bank (SARB) yesterday launched the Corporation for Deposit Insurance (CODI) to safeguard depositors in case of bank failures.

This as Bank Zero says the move is significant and will disrupt South African banking dramatically away from “the banking oligopoly”.

CODI aims to protect qualifying depositors in the face of bank collapses. It provides cover of up to R100 000 to each qualifying depositor per bank in the unlikely event of a bank’s collapse. This coverage limit protected nine out of 10 qualifying depositors in the country.

CODI protects deposits held by retail and private non-financial corporate depositors in qualifying products. They typically include individual depositors and non-financial businesses, charitable or non-profit organisations, religious entities, trade unions, consumer associations and stokvels.

Prior to CODI’s introduction, South Africa did not have an explicit deposit insurance scheme, compelling the government to use taxpayers’ money to compensate affected depositors on a case-by-case basis.

The fund is supported by, among other options, monthly premiums and loan contributions by member banks, reducing the financial burden on taxpayers.

CODI, which became operational on April 1 this year, provides pre-planned, orderly access to deposits in qualifying products, and will inform qualifying depositors about when and how to access their funds.

The cover is automatic and depositors do not have to register for CODI’s protection.

The cover extends to qualifying depositors of all banks, including commercial, co-operative and mutual banks as well as local branches of foreign banks.

According to the SARB: “CODI is one of a number of Twin Peaks regulatory reforms introduced after the 2008–09 global financial crisis. It is part of the wider financial sector safety net that includes the Prudential Authority (PA), which supervises financial institutions; the Financial Sector Conduct Authority (FSCA) that ensures that financial institutions treat their customers fairly and transparently; and the SARB, the lender of last resort and Resolution Authority responsible for the orderly resolution of failed designated institutions.”

Yatin Narsai, chief executive of Bank Zero, responding to the launch, said CODI finally aligned South Africa with the rest of the Group of Twenty.

By guaranteeing cash deposits of up to R100 000 per qualifying depositor in the event of a bank collapse, this new scheme had the potential to change South Africa’s banking landscape, which is currently dominated by the Big Five: FNB, Nedbank, Standard, Absa and Capitec, he said.

Narsai explained that in the past three decades, 13 banks had failed in South Africa, with VBS being the most recent.

“Because there is no explicit deposit insurance scheme in this country, depositors either lost their money or had to rely on the state coming to their rescue. We can never forget how many ordinary South Africans lost their life savings in the VBS implosion. Now that CODI is in place, and covers all banks, including mutual banks as well as local branches of foreign banks, depositors’ money is safe.”

He said CODI had been a long-time coming, with the decision to proceed having been made in 2014 and the relevant legislation only promulgated in 2022.

Narsai alleged that much of this delay could be attributed to delaying tactics from the Systemically Important Financial Institutions, the banks considered too big to fail. In an environment with no deposit protection, these big banks enjoyed a “trust advantage” among depositors, who could feel relatively confident that, in the event of a liquidity problem, the government would intervene.

“Pre-CODI, many depositors decided to put up with the high bank fees and poor service of the big banks to have peace of mind. Thanks to CODI, they can now switch to the more customer-focused, innovative and cost-effective banks like Bank Zero,” he said.

“The banking oligopoly is dead; long live the new age of powerful, customised banking for everybody,” he added.

The announcement is timely as a flood of new entrants take on legacy banks.

This week, it was announced that Old Mutual had received approval to establish a bank, named OM Bank, subject to certain licence conditions. It aims to target the mass retail banking market and give Capitec, with its 22 million customers, a run for its money.

This as other new entrants – TymeBank, Bank Zero and Discovery Bank, among others – have started to eat legacy banks’ pie. In the past two years, a resurgent African Bank has also been actively growing its stake in the mass retail market

The Banking Association of South Africa (Basa) MD Bongiwe Kunene said the organisation congratulated CODI, the SARB and member banks for working diligently in achieving the milestone.

“The strength, stability and responsible management of South African banks is an essential business and economic asset for South Africa, which helps to attract and facilitate domestic and foreign investment. Banks are participating in this scheme because CODI helps to strengthen business and customer trust and confidence in banks,” Kunene said.

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