Deposit Insurance System In Malaysia
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Deposit Insurance System In
Malaysia
Purpose of briefing
To enhance knowledge and understanding
of the national deposit insurance system,
the role of PIDM and the Government
Deposit Guarantee (“GDG”)
1
What is deposit insurance?
A system that protects depositors against the loss of their
insured deposits placed with member institutions (member
banks)
Depositors will be reimbursed promptly on their insured
deposits in the unlikely event of a member bank failure
It is not related to or managed by any general or life
insurance companies
Generally a Government sponsored scheme
2
Deposit insurance – How it began
Origin of deposit insurance - United States
The Great Depression and banking crisis of 1933
Significant number of bank failures (1921-1933)
Public confidence shaken leading to bank runs
Enactment of Banking Act 1933 and establishment
of Federal Deposit Insurance Corporation (FDIC)
Restored public confidence
Reduced bank runs
3
Incidents of Bank Runs
The US’s Banking Crisis in the 1930’s
Northern Rock Crisis in September 2007 - UK
Bank of East Asia Crisis in
September 2008 – Hong Kong
5
Africa Asia Europe
Middle East
Western Hemisphere
Algeria
Kenya
Nigeria
Sudan
Tanzania
Uganda
Zimbabwe
BangladeshHong KongIndiaIndonesiaJapanKazakhstanKoreaLao PDRMalaysia Marshall Isl.MicronesiaPhilippinesSingaporeSri LankaTaiwanTajikistanThailandUzbekistanVietnam
AustriaAlbaniaArmenia
Bosnia-HerzegovinaBelgiumBulgariaCroatiaCyprusCzech Rep.DenmarkEstoniaFinlandFranceGermanyGibraltarGreeceHungaryIcelandIrelandIsle of ManItaly
LatviaLiechtensteinLithuaniaLuxembourgMacedoniaMaltaMoldovaMontenegroNetherlandsNorwayPolandPortugalRomaniaRussiaSerbiaSlovak Rep.SloveniaSpainSwedenSwitzerlandTurkeyUkraineUK
Bahrain
Jordan
Lebanon
Morocco
Oman
ArgentinaBahamasBrazilCanadaChileColombiaDominican Rep.EcuadorEl SalvadorGuatemalaHondurasJamaicaMexicoNicaraguaParaguayPeruPuerto RicoTrinidad & TobagoUruguayUSAVenezuela
Implemented worldwide since 1934
In total, more than 100 countries
with a deposit insurance system
In Malaysia
In 2001, Financial Sector Master Plan recommended the
establishment of a deposit insurance system in Malaysia
A Deposit Insurance Task Force formed by Bank Negara Malaysia
(BNM) studied and compared best practices of established deposit
insurance systems in other countries
Akta Perbadanan Insurans Deposit Malaysia 2005 (Akta PIDM) passed
by Parliament in July 2005
Perbadanan Insurans Deposit Malaysia (PIDM) [or Malaysia Deposit
Insurance Corporation (MDIC) within the international context]
established to administer a deposit insurance system in Malaysia
launched on 1 September 2005
PIDM is a separate independent entity from BNM
6
Objects of PIDM
Section 4 of Akta PIDM:
Administer the deposit insurance system
Provide insurance against the loss of part or all of
deposits of a member bank
Provide incentives for sound risk management in the
financial system
Promote or contribute to the stability of the financial
system
Minimise costs to the financial system
7
Responsibilities
Mandate
PIDM will protect Islamic and conventional deposits,
provide incentives for promoting sound risk management
and promote and contribute to the stability of the
financial system in Malaysia
Functions Assess and collect premiums from member banks
Manage deposit insurance funds
Undertake resolution of non-viable banks
Reimburse depositors should a bank fail
Create and enhance public awareness on the deposit
insurance system
8
Governance of PIDM
A statutory body that reports to Parliament through the
Minister of Finance
Board structure
Chairman appointed by the Minister of Finance
Governor of BNM (ex-officio)
Secretary General of the Treasury (ex-officio)
4 members appointed by the Minister of Finance
(1 from public sector and 3 from private sector)
9
PIDM’s Board of Directors
Tan Sri Dato’ Abdul Aziz bin Haji Taha (Chairman)
Tan Sri Dato’ Sri Dr. Zeti Akhtar Aziz (Governor of BNM)
Tan Sri Dato’ Sri Dr. Wan Abdul Aziz bin Wan Abdullah
(Secretary-General of Treasury)
Tan Sri Dato’ Sri Dr. Sulaiman bin Mahbob (Public Sector)
Private sector
Datuk Dr. Abdul Samad bin Haji Alias
Mr. Michael Wong Kuan Lee
Mr. George Anthony David Dass
10
11
BNM is and remains the primary supervisor and regulator of the
financial system. PIDM complements BNM’s role and contributes to
stability of the system
No duplication of functions & minimal regulatory costs
PIDM Act sets out interrelationship between PIDM and BNM with
respect to exchange of information
Strategic Alliance Agreement between PIDM and BNM
BNM examines member banks and PIDM will rely on
examination reports provided by BNM
PIDM may undertake resolution on banks upon notification of non-
viability by BNM
Relationship between PIDM & BNM
PIDM’s role in the financial system
PIDM promotes public confidence in the Malaysian financial system
by protecting depositors against the loss of their deposits
PIDM reinforces and complements the existing regulatory and
supervisory framework by providing incentives for sound risk
management in the financial system
PIDM minimises costs to the financial system by finding least cost
solutions to resolve troubled banks
PIDM contributes to the stability of the financial system by dealing
with bank failures expeditiously and reimbursing depositors
promptly
12
The deposit insurance coverage
RM60,000 per depositor per member bank
(inclusive of interest / returns)
Ringgit deposits only
Separate coverage for individual and corporate accounts, joint
and trust accounts, sole proprietorships and partnerships
Separate coverage for Conventional and Islamic deposits
Insurable deposits: savings deposits, current deposits, fixed
deposits, Islamic investment deposits, banker’s cheques, bank
drafts, other payment instructions, other instruments as may
be approved
13
Illustration – The deposit insurance coverage scope
Owner Type of deposit Amount (RM) Protected (RM)
Ali Savings 50,000 50,000
Ali & Wife Savings 40,000
Current 40,000 60,000
Ali, Wife &
Son
Savings 100,000 60,000
Ali, Leong &
Co (legal firm)
Current 80,000 60,000
Ali Trading Current 30,000 30,000
14
The current situation
A pre-emptive and precautionary measure, consistent with measures
taken by neighbouring jurisdictions, to maintain financial stability
Its main objectives are targeted at:
Maintaining stability of financial system by preserving confidence of
depositors
Mitigating possibility of funds moving to other jurisdictions with similar
guarantee
Mitigating effects of deposit movements amongst financial institutions (“FIs”)
Malaysian banking system is well capitalised and profitable, and it is
unlikely that the guarantee will be called upon
Under the Government Deposit Guarantee (“GDG”) implemented on 16 October 2008, deposits are now fully guaranteed
until 31 December 2010
15
16
List of guaranteed financial institutions
Member banks
Licensed Commercial Banks – 23 banks
(including locally incorporated foreign commercial banks)
Licensed Islamic Banks – 17 banks
Other guaranteed financial institutions
Licensed Investment Banks – 15 banks
Licensed International Islamic Banks –4 banks
Deposit-Taking Development Financial Institutions under
the supervision of Bank Negara Malaysia – 5 DFIs
17
Affin Bank
Alliance Bank Malaysia
AmBank
Bangkok Bank
Bank of America Malaysia
Bank of China (Malaysia)
Bank of Tokyo-Mitsubishi
UFJ (Malaysia)
CIMB Bank
Citibank *
Deutsche Bank (Malaysia)
EON Bank
* Provides Islamic banking services
Hong Leong Bank
HSBC Bank Malaysia
J. P. Morgan Chase Bank
Malayan Banking
OCBC Bank (Malaysia)
Public Bank
RHB Bank
Standard Chartered Bank
Malaysia
The Bank of Nova Scotia
The Royal Bank of Scotland
United Overseas Bank
(Malaysia)
Commercial Banks
Member banks
18
Affin Islamic Bank
Alliance Islamic Bank
Al Rajhi Banking &
Investment Corporation
(Malaysia) Berhad
AmIslamic Bank
Asian Finance Bank
Bank Islam Malaysia
Bank Muamalat Malaysia
CIMB Islamic Bank
EONCAP Islamic Bank
Hong Leong Islamic Bank
HSBC Amanah Malaysia
Berhad
Kuwait Finance House
Maybank Islamic Berhad
OCBC Al-Amin Bank
Public Islamic Bank
RHB Islamic Bank
Standard Chartered
Saadiq Berhad
Islamic Banks
Member banks (cont’)
Membership denoted by decal
19
20
Affin Investment Bank
Alliance Investment Bank
AmInvestment Bank
CIMB Investment Bank
ECM Libra Investment Bank
Hong Leong Investment
Bank
Hwang-DBS Investment
Bank
KAF Investment Bank
Investment Banks
Other guaranteed financial institutions
Kenanga Investment
Bank
Maybank Investment
Bank Berhad
MIDF Amanah
Investment
Bank
MIMB Investment Bank
OSK Investment Bank
Public Investment Bank
RHB Investment Bank
21
Unicorn International Islamic Bank Malaysia Berhad
PT. Bank Syariah Muamalat Indonesia, Tbk
Al Rajhi Banking & Investment Corporation
International Islamic Banks
Other guaranteed financial institutions (cont’)
Deposit-Taking Development Financial Institutions
Bank Simpanan Nasional (BSN)
Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat)
Bank Pertanian Malaysia Berhad (Agrobank)
Bank Pembangunan Malaysia Berhad
Bank Perusahaan Kecil & Sederhana Malaysia Berhad
(SME Bank)
Coverage
With the implementation of the GDG, PIDM now fully
protects all Ringgit and foreign currency deposits
All types of depositors – whether businesses or
individuals holding conventional or Islamic deposits –
are fully protected on their eligible deposits
This temporary GDG provides for additional depositor
protection over and above that provided by PIDM, and
will be in effect until 31 December 2010
22
Coverage (Cont’d)
Government Deposit Guarantee ("GDG")
16 Oct 2008 31 Dec 2010
Sept 2005 Deposit Insurance
23
Coverage (cont’d)
Types of deposits and instruments guaranteed:
Deposits that are eligible for protection under the GDG
include:
Fixed deposits, current accounts, saving accounts, joint
accounts and trust accounts
Islamic deposits
Principal guaranteed conventional structured deposits
Foreign currency deposits
Negotiable instruments of deposits held by non FIs
24
Coverage (cont’d)
Types of deposits and instruments NOT guaranteed:
Certain deposits and instruments are not covered under the
GDG. These are :
Conventional structured products that are not principal
guaranteed
Deposits payable outside Malaysia
Inter-bank money market placements
Negotiable instruments of deposits held by FIs
Repurchase agreements
25
GDG – Mitigating Moral Hazard
Guaranteed financial institutions are not to assume excessive
risk taking
Prohibition on using Government guarantee as a device to
market or attract deposits
Fee to be paid by guaranteed institutions for the benefits
provided by the guarantee
Heightened supervision and reporting
Regulatory and supervisory direction on expectations during the
guarantee period
Non-compliance subject to appropriate penalties
26
GDG - A summary
PIDM’s Explicit, Limited Deposit Insurance Coverage
Coverage of Government Guarantee
Coverage RM60,000 per depositor per member bank
Ringgit deposits only
Separate coverage for individual and corporate accounts,
joint and trust accounts, sole proprietorships and
partnerships
Separate coverage for Conventional and Islamic deposits
Insurable Deposits Savings Deposits
Current Deposits
Fixed Deposits
Islamic investment deposits
Banker’s cheques, bank drafts & other payment instructions
Other instruments as may be approved
Member Banks All commercial banks – 9 domestic banks & 13 locally
incorporated foreign banks
All Islamic banks – 11 domestic & 6 locally incorporated
foreign banks
Guaranteed All insurable deposit products Any deposit amounts held with member banks over the
RM60,000 limit AND Deposits held with investment banks, deposit taking
development financial institutions (DFIs) and International Islamic Banks Negotiable Instruments of Deposit (NID) held by non-bank
customers Foreign Currency Deposits Principal Guaranteed Structured Products
Not Guaranteed Interbank money market placements Repurchase Agreements NIDs held by banks Deposits payable outside Malaysia Non-Principal Guaranteed Conventional Structured Products
Guaranteed Institutions 39 member banks under PIDM’s limited Deposit Insurance
Coverage; AND 15 investment banks 5 deposit taking DFIs regulated by BNM 3 International Islamic Banks
27
Funding
Funded by premiums paid by member banks
Premiums calculated based on
Flat rate for 2006 and 2007
Differential rates from 2008 onwards (i.e. DPS)
Maintains two funds
Islamic Deposit Insurance Fund
Conventional Deposit Insurance Fund
Funds invested in RM securities issued or guaranteed by
the Government or BNM
28
Payment to depositors
Should a bank fail, depositors will be reimbursed promptly
No later than three months, under the PIDM Act
Reimbursement based on records of bank
Do not need to make a claim
PIDM will announce how, where and when it will reimburse the protected deposits
Payment of Islamic and conventional insured deposits from Islamic or Conventional Deposit Insurance Fund respectively
PIDM can raise funds from Government or market, if necessary
29
Proposed Regulations on the Provision of Information
on Deposit Insurance
Objectives to ensure that member banks: Make clear representations about their membership in the
deposit insurance system
Disclose whether a deposit product is insured or not
Provide accurate information on deposit insurance to
depositors
PIDM has an obligation to ensure depositors receive
accurate, relevant and timely information on deposit
insurance and coverage
30
Salient features of Regulations
31
1) Negative and positive disclosure of deposit products
2) Register of Insured deposit products
3) Advertisement of deposit products:
1) Member banks required to tag insurability statement
next to deposit products
2) Also tag membership statement next to name of
member bank
4) Acknowledgement from customers:
1) Insurability status of all deposits
2) PIDM Information Brochures
Enhancing public awareness
Deposit insurance contributes to the overall growth and
economic stability
Through building public confidence in the banking system
Public confidence can be increased by raising awareness
on deposit insurance
PIDM is committed in building public awareness
Crucial for depositors and other stakeholders to know how
deposit insurance works for them
Such knowledge gives certainty and comfort to depositors
in the face of rumours of a financial institution failure
32
Print advertisements
33
Print advertisements
34
Raising awareness in many languages
Toll free Call Centre (1-800-88-1266) – responds to public
queries in Bahasa Malaysia, English, Chinese and Tamil
Website (www.pidm.gov.my) in 4 languages
Bahasa Malaysia, English, Chinese and Tamil
35
36
Raising awareness in many languages (Cont’)
Public information materials
Public information leaflets in 6 languages (Bahasa Malaysia,
English, Chinese, Tamil, Iban and Kadazandusun)
In summary – Depositor Protection
Deposit insurance protects depositors from the loss of their insured
deposits placed in banks
In the unlikely event of a bank failure, depositors will be
reimbursed promptly on their insured deposits
Deposit insurance contributes to stability of the financial system
Deposit insurance is provided automatically to all depositors at no
charge
With the implementation of the GDG on 16 October 2008, PIDM now
fully protects all Ringgit and foreign currency deposits in member
banks and other guaranteed financial institutions
37
Moving forward – Post GDG
To continue monitoring developments in the
banking system
To revert to an explicit limited coverage deposit
insurance system when the GDG expires on 31
December 2010
To recommend the adequacy of the limit and scope
of deposit insurance coverage to be implemented
38
Briefing to MIs and other guaranteed FIs
Scheduled briefing sessions in April and May 2010
MONTH DATE LOCATION
April
6 Seremban
7 Malacca
8 Kuala Lumpur
May 5 Sitiawan, Perak
39
More information
For further information:
Contact our Customer Service Call Centre:
1-800-88-1266 (Toll-free)
8.30 a.m. to 5.30 p.m. (Monday-Friday)
Visit our Web site at:
http://www.pidm.gov.my
Email us at:
40
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