The PMA has recently established the Palestine Deposit Insurance Corporation (PDIC) in order to safeguard small bank depositors, promote a stable and sound banking sector and contribute to sustainable economic development in Palestine. The law establishing the PDIC was drafted with the support of and collaboration with the World Bank and IMF experts. The PDIC law came into effect on September 20, 2013. [1] In 2014 the PDIC was established and it started operations.
The principal aim of the PDIC is to provide insurance for small deposits (up to US$10,000, covering around 92 percent of depositors) at PMA-licensed banks operating in Palestine in case of bankruptcy or liquidation of a bank. Its main objectives are to protect the rights of its member depositors in accordance with the ceiling for compensation established in Article 21 of the law, enhance customers’ confidence in the banking system, contribute to maintaining the banking system’s stability, and raise public awareness of the deposit insurance system.
According to the PDIC law, the equity of the PDIC consists of (i) annual contributions by subscribing banks to be paid quarterly, currently in the amount of 0.3 percent p.a. of their deposits subject to insurance, (ii) one-time subscriptions of participating banks in the amount of US$ 100,000 per bank, (iii) a government contribution of US$ 20 million. In addition to that, the PDIC is seeking additional grants, credit facilities and soft loans by international financial institutions and organizations.
Prior to the establishment of the PDIC, the PMA assisted by World Bank experts conducted a feasibility study of the banking industry in Palestine that showed that the industry complies with the Basel fundamental principles and requirements for establishing a deposit insurance scheme. In particular, the study pointed to several banking performance indicators on the feasibility of launching such a scheme. These indicators include: (i) a very low bank loan default ratio of around 3 percent, (ii) high capital base for all banks and branches and with a capital adequacy ratio in excess of both the average Basel requirement (of 8 percent) and the PMA recommended limits, (iii) high bank profitability with an average return on equity (ROE) of over 16 percent, (iv) very effective PMA banking supervision regulations for the purpose of financial stability as amply attested to by World Bank and IMF reports, (v) a legislation environment conducive to the establishment of a deposit insurance institution with the World Bank playing a leading role in drafting the PDIC law, and (vi) government’s readiness to support the PDIC finances by contributing a sum of US$ 20 million towards the capital of the institution. Another factor contributing to the strength of the banking industry in Palestine was the liquidation in the past few years of two ailing banks and the merger of four other banks.
For more information please visit: www.pdic.ps
[1] /Portals/0/Users/002/02/2/Legislation/Laws/Presidential_Decree_No_7_of_2013_on_Palestine_Deposit_Insurance_Corporation_En.pdf