The Corporation for Deposit Insurance (CODI) finally aligns South Africa with the rest of the G20.
By guaranteeing cash deposits of up to R100,000 per qualifying depositor in the event of a bank collapse, this innovative new scheme has the potential to change South Africa’s banking landscape, which is currently dominated by the Big Five (FNB, Nedbank, Standard, Absa and Capitec).
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.
CODI has been a long time coming
In the past three decades, 13 banks have failed in South Africa, with VBS being the most recent. 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.
We can never forget how many ordinary South Africans lost their life savings in the VBS implosion. 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.
CODI has been a long time coming, with the decision to proceed having been made in 2014 and the relevant legislation only promulgated in 2022. There is good reason for thinking that much of this delay could be attributed to delaying tactics from the Systemically Important Financial Institutions, the banks considered too big to fail. In an environment with no deposit protection, these big banks enjoyed a “trust advantage” among depositors, who could feel relatively confident that, in the event of a liquidity problem, the government would intervene.
The banking oligopoly is dead
Pre-CODI, many depositors decided to put up with the high bank fees and poor service of the big banks to have peace of mind. Thanks to CODI, they can now switch to the more customer-focused, innovative and cost-effective banks. The banking oligopoly is dead; long live the new age of powerful, customised banking for everybody.
Deposit insurance came into effect in April and the first data set of covered depositors has been submitted to the CODI regulator. There are two unique differentiators that benefit depositors, now that CODI is live.
Firstly, minors having their own profiles ensure that their funds are individually protected by CODI, up to R100,000 each, separate from their parents’ protected amount of R100,000. This stands in stark contrast to most other banks, which typically require minors’ accounts to be linked under a parent’s name, where the minor’s money would not be independently safeguarded.
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. Additionally, the way that we treat 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 us.
Unlike other banks, a club account has separate profiles for each member of the club, thus providing R100,000 of total cover for each member across their club contributions and other accounts. Given that one of the popular types of clubs – stokvels – represent a R45-billion market, the potential protection of these deposits in the hands of the individual members is good news for the South African economy.
In conclusion
Another benefit of CODI, is that each business banking profile an individual opens is protected up to R100,000. This will encourage smaller businesses to conduct proper trading through their various business profiles rather than combining everything under their 
personal names. Since each separate profile is protected up to R100,000 at each bank, customers will also be encouraged to spread their money across several banks, knowing that each profile is safeguarded up to the limit of R100,000.
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. A business or club can now confidently use our powerful business banking capability at a fraction of the cost, and with infinitely greater convenience and usability.
Yatin Narsai | CEO | Bank Zero | mail me |
