The Corporation for Deposit Insurance (CODI) now aligns South Africa with the rest of the G20, guaranteeing cash deposits of up to R100 000 per qualifying depositor in the event of a bank collapse.
The Reserve Bank estimates that the R100 000 cap means that more than 90% of depositors will be fully covered even though the total rand value covered represents less than 23% of total deposits.
Yatin Narsai, CEO of Bank Zero, believes the new scheme could change South Africa’s banking landscape, which is currently dominated by the Big Five commercial banks.
“In the past three decades, 13 banks have failed in South Africa, with VBS being the most recent, Narsai says. “Because there was no explicit deposit insurance scheme in this country, depositors either lost their money or had to rely on the state coming to their rescue.
“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.”
The decision to proceed with CODI was made in 2014, but the relevant legislation was only promulgated in 2022.
Narsai says that, pre-CODI, depositers had little choice about their banking partner, with only the big banks giving them peace of mind.
“Thanks to CODI, they can now switch to customer-focused, innovative and cost-effective banks like Bank Zero. ”
Deposit insurance came into effect in April and the first data set of covered depositors has been submitted to the CODI regulator.
Narsai says two Bank Zero differentiators benefit depositors, now that CODI is live.
Firstly, minors having their own profiles on Bank Zero ensures that their funds are individually protected by CODI, up to R100 000 each, separate from their parents’ protected amount of R100 000. Since CODI covers only one account per individual up to R100 000 across all accounts within that profile, parents assisting their minor children in saving will view this distinction as a substantial advantage, Narsai explains.
Additionally, the way that Bank Zero treats club accounts like stokvels and any other group savings accounts creates automatic cover under CODI for those individuals in the club who also bank with Bank Zero. Given that stokvels represent a R45-billion market, this is good news for the South African economy, says Narsai.
With CODI, each business banking profile is protected up to R100 000, so smaller businesses will be encouraged to conduct proper trading through business profiles rather than under their personal names.
“Deposit insurance will mean that more people are protected against bank failures while still being able to benefit from the huge advantages offered by new, mobile-first banks like Bank Zero,” says Narsai.