Stanbic boss supports deposit insurance - says the banking industry needs it

BY: Theophilus Yartey
Mr Alhassan Andani — MD, Stanbic Bank Ghana
Mr Alhassan Andani — MD, Stanbic Bank Ghana

The Managing Director of Stanbic Bank Ghana Limited, Mr Alhassan Andani, has justified the idea of deposit insurance scheme in the country, insisting that it won’t add to the cost of lending by the banks and other deposit taking institutions.

Contrary to views by some critics of the scheme that it will lead to interest rate hikes, Mr Andani explained that the cost of insuring the deposits would be insignificant and, therefore, could not translate into higher interest rates.

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“This is not a cost that escalates interest rates. The main driver of interest rates is the uncontrolled risk premium in formal banking. We put premium on risk, and my question is: who controls the risk?”

Mr Andani was giving his perspectives on the implementation of deposit insurance, the main talking point tomorrow when stakeholders and players in the banking sector converge on the Labadi Beach Hotel in Accra for the first edition of this year’s Graphic Business /Stanbic Bank breakfast meeting.

The event, which will be held on the theme: ‘Deposit insurance: A catalyst for a stronger banking industry,’ will afford players in the banking sector the opportunity to gain deeper understanding of deposit insurance, which is now mandatory following the passage of the Ghana Deposit Protection Act, 2016, Act 931 two years ago.

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It will also provide the platform for the central bank to give an update on the state of affairs of the deposit insurance scheme in the country.

Breakfast meeting

The meeting will have the Governor of the Bank of Ghana, Dr Ernest Addison; Nana Otuo Acheampong, a banking consultant, and Mr Seth Asante, who is a Partner and Head of Financial Institutions and Capital Markets Practice Group at Bentsi-Enchill, Letsa & Ankomah, leading the discussions.

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On the importance of deposit insurance to banking, Mr Andani explained: “What deposits protection does is to warn depositors that there is a risk involved in depositing your money with the deposit-taking institution. We need to plant into people’s decision-making framework that they are entering into a transaction which is not bullet-proof. It basically tells you that you are entering into a construct that promises future benefit; however, beware that there is a risk involved and that risk will be mitigated but not fully. Deposit insurance is telling you that think carefully of your counter parties who you are placing your deposits with because there is an element of risk.”

Opposing views

Mr Andani’s comments are at variance with a former Deputy Governor of Bank of Governor, Mr Emmanuel Asiedu-Mante, who in an earlier interview with the GRAPHIC BUSINESS last week contended that the country did not need deposit insurance scheme because it would add to the cost of lending, which is already high.

Mr Mante argued that with lending rate almost at 35 per cent, the implementation of deposit insurance would push up the rate, worsening an already bad situation.

He also described the scheme as an “unnecessary burden” and stated that looking at the cost benefit analysis of the deposit insurance, the banking industry and the economy in general would be better off without the scheme.