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Deposit Insurance System In Malaysia

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 d eposit i nsurance?.

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Deposit Insurance System In Malaysia

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  1. Deposit Insurance System In Malaysia

  2. 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

  3. 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

  4. 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

  5. Implemented worldwide since 1934 Africa Asia Europe Western Hemisphere Bangladesh Hong Kong India Indonesia Japan Kazakhstan Korea Lao PDR Malaysia Marshall Isl. Micronesia Philippines Singapore Sri Lanka Taiwan Tajikistan Thailand Uzbekistan Vietnam Latvia Liechtenstein Lithuania Luxembourg Macedonia Malta Moldova Montenegro Netherlands Norway Poland Portugal Romania Russia Serbia Slovak Rep. Slovenia Spain Sweden Switzerland Turkey Ukraine UK Algeria Kenya Nigeria Sudan Tanzania Uganda Zimbabwe Austria Albania Armenia Bosnia- Herzegovina Belgium Bulgaria Croatia Cyprus Czech Rep. Denmark Estonia Finland France Germany Gibraltar Greece Hungary Iceland Ireland Isle of Man Italy Argentina Bahamas Brazil Canada Chile Colombia Dominican Rep. Ecuador El Salvador Guatemala Honduras Jamaica Mexico Nicaragua Paraguay Peru Puerto Rico Trinidad & Tobago Uruguay USA Venezuela Middle East Bahrain Jordan Lebanon Morocco Oman In total, more than 100 countries with a deposit insurance system

  6. 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) established to administer a deposit insurance system in Malaysia launched on 1 September 2005 • PIDM is a separate and operationally independent Government entity 5

  7. Objects of PIDM Section 4 of Akta PIDM: • Administer two deposit insurance systems • 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 6

  8. 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 7

  9. 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) 8

  10. 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 9

  11. Relationship between PIDM & BNM • 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

  12. PIDM’s role in the financial system • PIDMpromotes public confidencein 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 • PIDMminimises coststo the financial system by finding least cost solutions to resolve troubled banks • PIDMcontributes to the stabilityof the financial system by dealing with bank failures expeditiously and reimbursing depositors promptly 11

  13. 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 12

  14. Illustration – The deposit insurance coverage scope 13

  15. The current situation Under the Government Deposit Guarantee (“GDG”) implemented on 16 October 2008, deposits are now fully guaranteed until 31 December 2010 • 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”) • GDG is administered by PIDM Malaysian banking system is well capitalized and profitable, and it is unlikely that the guarantee will be called upon 14

  16. List of guaranteed financial institutions Member banks Licensed Commercial Banks – 22 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 – 3 banks Deposit-Taking Development Financial Institutions under the supervision of Bank Negara Malaysia – 5 DFIs

  17. Member banks Commercial Banks • 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 • 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) * Provides Islamic banking services

  18. Member banks (cont’) Islamic Banks • 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

  19. Membership denoted by decal 18

  20. Other guaranteed financial institutions Investment Banks • Kenanga Investment Bank • Maybank Investment Bank Berhad • MIDF Amanah Investment Bank • MIMB Investment Bank • OSK Investment Bank • Public Investment Bank • RHB Investment Bank • 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

  21. Other guaranteed financial institutions (cont’) International Islamic Banks • Unicorn International Islamic Bank Malaysia Berhad • PT. Bank Syariah Muamalat Indonesia, Tbk • Al Rajhi Banking & Investment Corporation 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)

  22. 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 21

  23. Coverage (Cont’d) Government Deposit Guarantee ("GDG") 16 Oct 2008 31 Dec 2010 Sept 2005 Deposit Insurance 22

  24. 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 23

  25. 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 financial institutions • Repurchase agreements 24

  26. 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 25

  27. PIDM’s Explicit, Limited Deposit Insurance Coverage 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 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 GDG - A summary 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 26

  28. 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 27

  29. 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 28

  30. Regulations • Issued • Disclosure Requirements for Trust Accounts & Joint Accounts • Differential Premium Systems (including new premium rate order) • Terms & Conditions of Membership • Proposed Guidelines • Guidelines on the Provision of Information on Deposit Insurance 29

  31. Proposed Guidelines on the Provision of Information on Deposit Insurance • Gazetting of PIDM’s Provision of Information on Deposit Insurance Regulations 2008 has been put on hold following the announcement of the GDG on 16 October 2008 • During the GDG period, Guidelines will be issued instead of Regulations • Objectives remain unchanged i.e. to regulate the provision of timely and accurate information on deposit insurance and PIDM to customers • Considering applicability to be extended to guaranteed institutions (investment banks, deposit-taking development financial institutions & international Islamic banks) 30

  32. Salient changes proposed in the Guidelines (1) • Prohibitions: • Use of the GDG as a device to market your respective organisation, solicit deposits or attract business • Issuance of misleading statements or misrepresent (in writing or orally) about any aspect or feature of the deposit insurance coverage under the GDG • Significantly reduced scope as compared with the draft Regulations • Insurability process put on hold except for structured deposit products and new products (submission only) 31

  33. Salient changes proposed in the Guidelines (2) REGULATIONS • Negative and positive disclosureof deposit products • Register of Insured deposit products • Advertisement of deposit products: • Member banks required to tag insurability statement next to deposit products • Also tag membership statement next to name of member bank • Acknowledgement from customers: • Insurability status of all deposits • PIDM Information Brochures GUIDELINES • Only negative disclosureof non-guaranteed structured deposit products • No Register required • Advertisement now requires only disclosure of membership statement. Disclosure of product insurability not required • Acknowledgement from customers: • Non-guaranteed status of structured products only • PIDM Information Brochures 32

  34. Next steps • Consultation process will take place once draft Guidelines are finalised • Thereafter, Guidelines will be issued 33

  35. 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 34

  36. New print advertisements – Year 2009 35

  37. New print advertisements – Year 2009 36

  38. New TV commercials and radio advertisements – Year 2009 • TV Commercials • TV3 Capsule – version 1 • TV3 Capsule – version 2 • Astro - Wah Lai Toi • Radio advertisements • Bahasa Malaysia – 2 versions • Chinese – 2 versions 37

  39. Raising awareness in many languages • Toll free Call Centre (1-800-88-1266) – responds to public queries in Bahasa Malaysia, English, Mandarin and Tamil • Website (www.pidm.gov.my) in 4 languages English, Bahasa Malaysia, Chinese and Tamil 38

  40. Raising awareness in many languages (Cont’) • Public information materials • Public information leaflets in 6 languages (English, Bahasa Malaysia, Chinese, Tamil, Iban and Kadazandusun)

  41. 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 40

  42. 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 41

  43. 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: info@pidm.gov.my 42

  44. Thank You

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