Frequently Asked Questions

 

How are guaranteed deposits reimbursed in case of a bank failure?

Deposit Protection Fund will reimburse guaranteed deposits via one or more banks, in case of a bank failure and bankruptcy procedure is declared.

Bank administrator is obliged to provide DPF with data and files related to failed deposit bank, within 15 days as of the day of administrator's appointment. After the amount of total guaranteed deposits and number of depositors are determined, Fund will commence reimbursement procedure. Deposit Protection Fund is obliged to inform depositors and public on details related to date, place and conditions of reimbursement, via public announcements in daily newspapers.

 

Is there any chance of DPF being incapable to reimburse all guaranteed deposits?

In case of a bank failure DPF is obliged to reimburse all guaranteed deposits within maximum 90 days after bank is declared bankrupt. If Fund's resources collected as premiums and other revenues are insufficient for overall liabilities, a shortage may be covered from the following additional sources:

•  Collecting extraordinary premium, keeping the total sum of annual and extraordinary premium not higher than 1.5% of total deposits of the banks

•  Taking loans from national or foreign banks

•  Borrowing from the Budget of the Republic, and/or

•  Issuing securities.

 

If a child has a savings account managed by parent or legal guardian, is the child's deposit guaranteed separately?

Yes, it is. Deposits are guaranteed for each depositor and so the deposits of children are guaranteed separately and do not count as a deposit by parents or the legal guardian.

The same applies for deposits of spouse, which are guaranteed separately, and in a case of someone who has power of attorney or is a custodian of an account.

 

Is there any exclusion from deposit insurance?

Yes, there are. Some deposits are excluded from deposit protection scheme in Montenegro, which is in line with the best international practices. As précised by the Law (Article 5), deposit protection will not cover following deposits:

  1. deposits of legal entities engaged in insurance,

  2. deposits of the budget of the Republic of Montenegro and local authorities,

  3. deposits of Extra Budgetary Funds in the meaning of the law governing the Budget of the Republic of Montenegro,

  4. deposits of pension funds,

  5. deposits of collective investment schemes founded on the basis of the law (privatization funds, investment funds etc.),

  6. bank deposits,

  7. deposits of persons for whom the bank, on their behalf and for their account, acting under their instructions, performs the operations for which the person that provides the money shall bear the risk,

  8. deposits of persons holding a bank's shares entitled to more than 5% of votes at the bank shareholders' meeting,

  9. deposits of bank's general manager, members of bank management board and its standing committees, directors, deputy directors and chiefs of departments and other organizational units in the bank, legal entities in which such persons have 10% or higher participation in capital or voting shares, as well as deposits of their spouses and relatives in the straight or lateral lines of kinship, up to the second degree of kinship,

  10. deposits of persons responsible for the audit of the bank's operation,

In addition to the deposits referred to in previous paragraph, deposit protection shall not cover the deposits for which:

•  it has been found through the examination reports of the Central Bank of Montenegro that they belong to a depositor who has contributed to the deterioration of the bank's financial position and who, as an account holder, obtained from the bank interest rates or financial concessions related to loans and other banking services especially related to:

•  obtaining loans that, due to type of transaction, level of risk, borrower credit capacity or type of collateral, would not be offered to other parties,

•  paying of lower interest rates on loans than those charged to other bank depositors,

•  obtaining higher interest rates on deposits than those paid to other bank depositors,

•  legal proceedings have been taken in order to establish if they are connected to the transactions or actions that represent money laundering or financing terrorism.

 

What are financial resources for deposit insurance?

Each bank in Montenegro is a participant member of deposit insurance safety net and is obliged to pay premiums to the Fund. Guaranteed deposits are reimbursed from thus collected resources in case of a bank failure.

In addition to premiums from banks, Fund will have investment revenues and a part of funding will\be ensured through donations, which is particularly significant at the beginning period of deposit insurance system. The Government of the Federal German Republic has provided donation through KfW Banking Group for supporting deposit insurance system in Montenegro. Donation of 3000000€ will be operational by the end of 2005.

 

What premiums are paid by banks?

Banks in Montenegro are obliged to pay initial and annual premiums to the Deposit Protection Fund:

  • Initial Premium is 0.3% of total bank deposits, but not less than 10.000 €, and should be paid not later than 15 days after the Law comes into the force

  • Annual premium is calculated and paid on a quarterly basis. In the first year of deposit protection implementation, annual premium will be determined by the Fund Managing Board, as a rate on total bank deposit sum.

When Fund resources reach the level of 3% of protected deposits, Managing Board shall consider quarterly the possibility of reducing annual premium, based on protected deposits level and resources of the Fund, and may even decide to temporary suspend premium collection.

As of 1 st January 2007, powers of Managing Board will include determination of different risk based premium ratios for individual banks, depending on a bank rating and risk management level.

 

How does DPF invest collected resources?

Primary investment goal of the Deposit Protection Fund is not profit, but security. Therefore, Fund invests only in high rated securities. The Law defines that Fund is limited to invest in national securities, which are issued or guaranteed by the Republic of Montenegro, or in securities issued by bank, financial institution or state with a high rating assessed by a meritorious international rating agency. Also, Fund may hold its accounts only with high rated bank. Internationally recognized rating marks range from highest AAA/AA/A/AB/, BBB to C, including various combinations.

Fund Managing Board defines investment policy of the Fund, based on stability and continuous solvency principles.

 

Are there deposit insurance systems in other countries?

There are currently 115 countries with a deposit insurance system in operation, pending, planned or under serious study (i.e. 89 in operation, 17 pending, 9 planned or under serious study). The oldest deposit insurance system constantly exists in USA as of 1934 (Federal Deposit Insurance Corporation) .

There are several countries with more than one deposit insurance system in operation (e.g. Austria, Canada, Germany, Italy and the United States). On the other hand, one deposit insurance system can cover more than one country (e.g. the Marshal Islands, Micronesia and Puerto Rico are insured by the US Federal Deposit Insurance Corporation; and Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea and Gabon will be covered also by a single system).

Circumstances in which deposit insurance system is being established mostly determine the most significant design features of deposit insurance system, as well as necessary range of public education and information. In many countries, system is formed in response to a financial crisis; in some countries, deposit insurance system has been established following economic and bank stabilization.

Nevertheless, regardless of all differences, deposit insurance objectives are similar in all countries – to ensure basic insurance to depositors and therefore contribute to financial system stability.

*Source of Data: IADI - “Questions on the Design of a Deposit Insurance System – Summary of Responses”