By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Around 580,000 Bahamian bank accounts, representing 96 percent of the total, were fully protected against their institution’s possible collapse as at year-end 2024, the Central Bank’s governor has revealed.

John Rolle, in written answers to Tribune Business questions, confirmed that the banking sector regulator is seeking to increase the size of the Deposit Insurance Fund beyond global standards to give Bahamians extra security and comfort even though it will take another “two to three years” to reach its $130m target size.

Revealing that the Fund was some $29.5m shy of this goal at year-end 2024, standing at $101.5m, he added that it was already well within international benchmarks standing at 3.6 percent of insured deposit values after enjoying an average 11 percent growth rate over the previous five years.

“The DIC (Deposit Insurance Corporation) will take at least another two to three years to reach its new target size,” Mr Rolle told this newspaper of the Fund. “The target size of the fund is guided by a global industry standard of which is 3 percent to 4 percent of insured deposit values.

“In the case of The Bahamas, a target of 4.67 percent of insured deposit values was set after performing various testing and simulations of potential adverse events in the financial system. The 4.67 percent ratio is scaled to the number of Bahamian deposits in banks and credit unions. Hence, as the deposit base expands, the size of the fund will also increase to maintain its ratio to insurable deposits.”

The Deposit Insurance Fund was established in the late 1990s following the collapse of Gulf Union Bank (Bahamas), which left many small local - as well as large - depositors exposed to life-changing financial losses because they were unable to recover their deposits. The Fund now fully insures all deposits up to a maximum $50,000, thus protecting most individuals and families from financial hardship should a bank fail.

“As at the end of 2024, the size of the Deposit Insurance Fund was $101.5m (3.6 percent of insured deposits’ values),” Mr Rolle said. “There were approximately $2.8bn of insured deposits within 18 member institutions. In this regard, the number of fully insured accounts was approximately 580,000, which is a coverage ratio of 96 percent of the accounts.

“Deposit insurance is an important source of confidence for depositors. It contributes to stability because it keeps depositors away from unnecessary panic about the loss of their funds should a deposit-taking entity fail. Public education and outreach on the deposit insurance scheme, how it works and how it benefits depositors is ongoing and will continue to help Bahamians understand the importance of deposit insurance.”

The Deposit Insurance Fund is financed by annual legally-mandated contributions from the commercial banks, both Canadian and Bahamian-owned, as well as all other deposit-taking institutions in The Bahamas such as the credit unions. The contribution rate was doubled as of January 2024 from one-twentieth of 1 percent to one-tenth of 1 percent of insurable deposits.

Finance Corporation of The Bahamas (FINCO), Royal Bank of Canada’s (RBC) majority-owned BISX-listed mortgage arm, in its results for the year to end-October 2024 revealed that its payments to the Deposit Insurance Fund had increased by 82.4 percent year-over-year.

“The Protection of Depositors Act 1999, as amended, in The Bahamas requires that the group pay an annual premium to the Deposit Insurance Fund based on insurable deposit liabilities outstanding. Effective January 1, 2024, the premium rate increased to one-tenth of one percent. During the year, the group paid $279,036 (2023: $152,947) into the fund,” FINCO said.

Elsewhere, Mr Rolle told Tribune Business that the most recent data reported by the Central Bank’s bank and trust company licensees revealed a year-over-year increase in fraud-related incidents even though these had been trending downwards in frequency.

Referring to last month’s meeting with regulated financial institutions, the Governor said: “The fraud information provided in the recent industry briefing was shared from the 2024 anti-money laundering data returns submitted by supervised financial institutions for the calendar year ended December 31, 2023.

“While, in 2023, the reported frequency of fraud relative to cheques, debit cards and credit cards declined by two-thirds, the data reported by the commercial banks through the anti-money laundering data returns indicated an increase in the number of overall actual fraud cases over the prior year 2022.

“Aside from how financial institutions continue to strengthen the controls within their internal operations, an essential and significant strategy to push back against fraud is through education that empowers customers to consistently adopt defensive stances and practices,” Mr Rolle added.

“This is why Bahamian financial institutions should continuously educate customers,;for example, on how to protect their data; how to use digital tools and digital platforms to continuously monitor their accounts; to combine multiple forms of passwords and security to control access to their accounts; and to use tools that protect their computers and personal devices from break-ins.”

On-site examinations by Central Bank inspectors in 2024 uncovered several common deficiencies among money transmission providers, including the need to align the compositions of Board and senior management with the regulator’s corporate governance guidelines and aligning internal audit functions with best practices and guidelines.

As for credit unions and international banks and trust companies, the Central Bank said licensees needed to ensure there is a succession plan for all key management positions and that “a documented periodic assessment of the Board’s effectiveness against its responsibilities” is in place.

“The Central Bank remains pleased overall with the quality of anti-money laundering risk management processes in the domestic financial space, but we always strive to build greater industry capacity in this area,” Mr Rolle told this newspaper. “In so far as credit unions and money transmission business are concerned, we are placing more emphasis on how they can better scale resources to satisfy compliance.

“Since the range of money laundering risks in non-banks is narrower, and the volume of operations less, an important emphasis is ensuring that the Central Bank calibrates differently how non-banks ought to resource themselves for compliance. In fact, for credit unions, the Central Bank is receptive to co-operatives being able collectively share the same compliance expertise where feasible.

“In terms of the financial health of supervised institutions, the credit unions have smaller capital and liquidity buffers than banks. Therefore, the Central Bank has a different approach in terms of how we chart their financial performance over the medium-term and strengthen their governance arrangements. This will become clearer when the proposed amendments to the credit union legislation are issued for public consultation.”