Chapter 9: Financial Services

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Chapter 9: Financial Services Serbian Deposit Insurance Scheme Republic of Serbia

Deposit Insurance Scheme Legal Framework EU regulations: Directive 2014/49/EU of the European Parliament and of the Council on Deposit Guarantee Schemes of 16 April 2014 Serbian Legislation: Deposit Insurance Law ( Official Gazette of the RoS No. 14/2015 of 04 February 2015) Law on Deposit Insurance Agency ( Official Gazette of the RoS No. 14/2015 of 04 February 2015) Law on Bankruptcy and Liquidation of Banks and Insurance Companies ( Official Gazette of the RoS No. 14/2015 of 04 February 2015) Law on Amendments and Additions to the Law on Banks ( Official Gazette of the RoS No. 14/2015 of 04 February 2015) Rules of Disclosure and Content of the Information on Deposit Insurance Given by Banks to Clients ( Official Gazette of the RoS No. 84/2011 of 11 November 2011) 2

DIS Design Mandatory deposit insurance: All banks licensed by the National Bank of Serbia (NBS) must insure deposits with the Deposit Insurance Agency and pay regularly the insurance premiums Purpose of the deposit insurance is protection of depositors and maintaining financial stability in the Republic of Serbia. The Serbian deposit insurance scheme guarantees that every depositor shall be reimbursed for its total savings (increased by interest) in every bank up to the amount of EUR 50,000 per depositor per bank in the case of bank bankruptcy or liquidation Deposit Insurance Agency (DIA) pay-box plus mandate Performs the activities relating to statutory deposit insurance and repayment of insured amounts Other activities: manages the assets transferred in the process of bank resolution and performs other activities related to bank resolution procedure pursuant to the law governing banks; acts as a bankruptcy or liquidation administrator for banks, insurance companies and leasing companies pursuant to the law governing bankruptcy and liquidation of banks and insurance companies and the law governing financial leasing; organizes the investor protection fund pursuant to the law governing the capital market. Ex ante funding of the Deposit Insurance Fund (DIF) Insured deposits are guaranteed by the Republic of Serbia 3

Scope and Limit of Coverage Eligible deposits (insured deposits) are deposits of: individuals, entrepreneurs, micro legal entities, small legal entities, and medium legal entities. Entrepreneur, micro, small and medium-sized legal entity have the meanings set by the law governing accounting Covered deposits (Insured amount): amount of insured deposit up to EUR 50,000 per depositor per bank Type of eligible deposits: savings deposit, current account or any other account held with a bank, and any other temporary situation arising out of performing regular banking operations, due to which a bank has a legal or contractual obligation to repay the funds The deposits that are excluded from DIS: (1) of legal entities or individuals connected with a bank; (2) coded or bearer deposits; (3) arisen from money laundering or terrorism financing; (4) of large legal entities; (5) of state bodies and institutions, bodies of the autonomous province or bodies of local governments; (6) of investors; (7) those that constitute contractual collateral, if the amount of a bank claim towards a depositor, which is guaranteed with the deposit, is larger than or equal to the size of that deposit, and (8) of bankruptcy or liquidation estates. 4

Institutional Cooperation Members of the deposit insurance system (DIS): All banks licensed by the NBS (29 banks); Membership in the DIS runs from the day of registration with the Register of Business Entities until the day of withdrawal of the bank license by the NBS; The Serbian legislation does not provide legal possibilities for foundation of a branch of a foreign bank. All banks with foreign ownership are established as separate legal entities; The DIA is entitled to onsite inspection of the documentation of a bank in respect of the information related to deposit insurance. Institutional cooperation within the financial safety net: DIA and NBS shall conclude the agreement on cooperation specifying the manner of cooperation, and information and data exchange related to banks and deposit insurance, such as: Exchange of data, information and views regarding the possibility to initiate the resolution procedure over a bank. NBS is obliged to notify the DIA timely of the measures in the process of supervision of solvency and lawfulness of operations of a bank that are taken due to worsening of its financial condition, and to submit to it the draft report on the least cost test. DIA and Ministry of Finance: At minimum once per quarter, the DIA shall submit the report on the DIF balance to the ministry in charge of finance, as well as assessments of the DIF balance in the following twelve months. 5

Deposit Insurance Fund DIF is comprised of: Premiums payable by banks; Investment proceeds: RSD assets are invested into the debt securities issued by the Government or by the NBS; foreign exchange assets are invested via NBS into the foreign securities or held as foreign deposits, in accordance with the national policy for foreign currency reserves management. Assets gained through recovery of claims of the Agency from the estate of a failed bank (claims on account of repayment of insured deposits or assets gained within the bank resolution process); Borrowed funds; Assets from the state budget; Grants, and Other assets, pursuant to the law. Additional assets for the DIF are provided on the basis of: collection of the extraordinary premium based on the DIA decision; From the state budget; DIA borrowings in local or foreign markets with the sovereign guarantee; Issuance of the debt securities with the sovereign guarantee; From other sources specifically allotted for this purpose by the state. 6

Deposit Insurance Fund DIF assets are used for: 1. Repayment of insured amounts of deposits together with associated costs in the case of bank bankruptcy or liquidation 2. funding of bank resolution processes, 3. funding the costs of the DIF management and covering of operating costs incurred by the DIA when carrying out activities related to deposit insurance (up to 1.7% of annual collection of the regular premium; 4. repayment of borrowed assets used for payment of insured deposits. DIF assets are not subject to tax; DIF assets may not be the subject of enforcement, forced sale or lien. Coverage Ratio 1.18% (23% of the Fund target level); Insured event - DIF interventions: 2014 payout of insured deposits of Univerzal banka payout delay 1 day, 98% of total depositors reimbursed (total 51,000 depositors) 7

Deposit Insurance Premiums Types of deposit insurance premiums Initial 0.3% of the pecuniary portion of the banks minimum initial capital, Regular paid quarterly, up to 0.2% of total insured deposits held with the bank. Extraordinary up to 0.4% of total insured deposits held with the bank during one year. The banks are obliged to pay insurance premiums to the DIA, in the manner and within time frames stipulated by the DIA, DIA sets the rate of the regular premium for the following year by 30 September of the current year and in doing so considers the situation in the banking and financial systems of the Republic of Serbia, their risk exposure, as well as the ratio between the total available assets of the Deposit Insurance Fund (the DIF) and the estimated level of funding required for the reimbursement of insured depositors in case of simultaneous failure of three mid-sized banks. Regular and extraordinary premiums are paid in RSD for deposits denominated in RSD and in EUR for deposits denominated in foreign currencies. The DIF s target ratio is 5% of total amounts of insured deposits. Once the target ratio has been reached, the DIA may stop assessing and levying the regular premiums. The DIA is required to ensure that the DIF account balance reaches at least 5% of total insured deposits in the banking system by 1 January 2025 and to set the regular premium rate with a view to achieving this objective. 8

Insured Event The competent court issues the decision on initiation of the bankruptcy/liquidation procedure over a bank. Reimbursement process begins within 7 working days via the network of the payout (agent) bank. Reimbursement period is 3 years. The DIA is obliged, within 3 working days, to notify the depositors via mass media and its website of their rights and obligations, day of beginning of the reimbursement process, payout bank and payout points. Based on the data kept by the failed bank, the DIA shall set the level of insured amount per single depositor, according to the balance of all deposits of that depositor on the day of initiation of the bankruptcy/liquidation procedure over the failed bank, including contractual interest until that day. Reimbursement process of insured deposits is explained in detail in the by-law adopted by the DIA: Insured Deposits Reimbursement Procedure and supported by the corresponding IT software. The DIA imposed the liability on banks to introduce IT procedure and procedure for provision of the deposit-related data to be taken over by the DIA in the adequate form. 9

Reimbursement The insured amount of up to EUR 50,000 is paid in RSD in case of the deposits denominated in RSD, and in EUR in case of the deposits denominated in foreign currencies, at the exchange rate of euro to the currency in question, computed on the basis of the middle exchange rate of RSD to EUR and the middle official exchange rate of RSD to the currency in question as of the date of opening of the bankruptcy or liquidation procedure against the bank. If a depositor has deposits denominated in both RSD and foreign currencies, the DIA will cause the payout (agent) bank to disburse the insured amount in proportion to the currency structure of all deposits such depositor keeps in the bank in RSD and foreign currencies. The insured deposits are made available to the depositors via the payout bank selected through a public tender. The rules of the public procurement procedure do not apply to the process of selection of the payout bank. Depositors whose deposits exceed the coverage level of EUR 50,000 may claim the difference between their total claim and the amount collected in the reimbursement process in the course of the bankruptcy or liquidation procedure (they rank first in priority in distribution). The DIA is subrogated to the depositors rights against the bank to the extent of the reimbursed amounts. The DIA s claim from the failed bank stemming from the reimbursement of the insured depositors is satisfied as the expense of the proceedings paid from the bankruptcy or liquidation estate 10

Use of Assets of the Deposit Insurance Fund in the Bank Resolution Process If it has been envisaged by the application of the resolution tools and/or implementation of measures in the resolution process that depositors of the bank under resolution continue to have access to their deposits, the DIF is used up to the amount of the losses the depositors would have suffered had their claims in respect of insured deposits been included in eligible liabilities and written down in order to absorb the losses of the bank under resolution together with the claims of other creditors with the same level of priority. DIF may not be used for direct absorption of losses of the bank under resolution, for recapitalization or to secure the capital for a bridge bank. The use of DIF is determined by the NBS resolution. Maximum outlays from the DIF for resolution purposes: May not exceed the amount that would have been paid in case of bankruptcy/liquidation for reimbursement of insured depositors, and May not exceed 2.5% of the total amount of insured deposits (50% of target Fund level). 11

Depositor Preference Eligible liabilities for loss absorption in case of a bank under resolution exclude the liabilities in respect of insured deposits up to the coverage level of EUR 50,000. NBS may exclude the liabilities based on insured deposits from eligible liabilities if such exclusion is necessary and adequate to prevent panic and bank run with respect to the deposits of individuals, entrepreneurs, micro, small and medium-sized legal entities. The claims of creditors remaining after the payout of deposits insured in terms of the law governing the deposit insurance constitute the first priority rank in distribution of proceeds of the bankruptcy or liquidation estate of the failed bank. The DIA s claims on account of the reimbursement of insured depositors or investors in terms of the law governing investor protection, along with any costs the DIA has incurred in the reimbursement process, the DIA s claims based on the use of the DIF assets, as per the law governing banks, as well as the claims of the Republic of Serbia on account of bank resolution financing, as per the law governing banks, constitute the expenses of the bankruptcy or liquidation proceedings and are satisfied before the distribution of the bankruptcy/ liquidation estate. 12

Informing Depositors Each bank is required to provide information about deposit insurance, as per the law governing deposit insurance, to its depositors and interested parties, especially the information concerning the coverage level and the reimbursement process. Such information may not be used for publicity purposes or in a way that threatens the stability of the banking system and depositors confidence. The manner of disclosure and the content of such information are prescribed by the DIA in a special regulation: Rules of Disclosure and Content of the Information on Deposit Insurance Provided by the Banks to Their Clients ( Official Gazette of the RoS, No. 84/2011 of 11 November 2011) 13

Plans for Harmonization with the EU Directive 2014/49 The Serbian deposit insurance system is largely harmonized with the Directive EU/2014/49. Further harmonization with the EU Directive 2014/49: Increase of coverage level to EUR 100,000 per depositor per bank; Inclusion in the insurance system of business entities that have the status of large legal entities (except for financial institutions, insurance companies, pension funds and state bodies and institutions, as well as bodies of local governments); Introduction of the risk-based premium calculation; Use of the insured amount as a base for calculation of the deposit insurance premium; Possibility of payment of the so-called social deposits within 5 working days. Full harmonization with EU regulations shall be accomplished at the latest until the moment of accession of the Republic of Serbia to the EU. 14

Thank you for your attention.