South Sudan moves to protect bank deposits with insurance scheme

Saturday June 03 2023

A motorist changes money from a young boy at a customs market in Juba, South Sudan. PHOTO | STEPHEN MUDIARI | NMG


The government of South Sudan has proposed a raft of measures to protect bank depositors and boost confidence in a banking industry bogged down by hyperinflation, currency devaluation and shortage of the dollar.

Juba is also seeking to reduce the cost of cash transactions by phasing out low denomination banknotes and reduce the cash reliance of the economy through supportive policies, including paying civil servants through bank accounts.

The Bank of South Sudan (BoSS) has disclosed in the International Monetary Fund (IMF) Country Report No. 23/108 dated March 2023 that plans are underway to implement an insurance plan for bank depositors as part of a wider East African integration agenda, seeking to protect account holders and boost confidence in the regional banking sector.

“We have requested all banks to supply BoSS with granular deposit data, to aid BoSS planning for the possible introduction of a deposit insurance scheme as part of our commitments towards further integration with the East African Community,” said the central bank.

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Soundness Indicators


As part of the measures to strengthen the banking sector and enhance financial inclusion in the war-ravaged economy, the banking regulator has also proposed plans to address the undercapitalisation of the banking sector.

Several licensed commercial banks, accounting for six percent of the industry’s assets and 12 percent of deposits, are undercapitalised.

“While such undercapitalisation is not a systemic issue, it hampers financial development and thereby the capacity of South Sudan’s banking sector to support economic growth and development,” the regulator said.

The regulator has revoked the licences of two dormant domestic banks that never commenced operations and is in the process of reviewing the licences of inactive banks that are critically undercapitalised or have ceased operations.

The BoSS board will this month approve a time-bound plan for addressing banking sector undercapitalisation as one of the structural benchmarks of the new IMF financing programme.

The IMF’s nine-month Staff-Monitored Programme with Board Involvement seeks to help South Sudan establish a policy track record towards an Extended Credit Facility.

The BoSS has also begun regular publication of quarterly Financial Soundness Indicators (FSIs) for South Sudan’s banking sector on its website to enhance transparency.

“We have published on the BoSS website these FSIs for end-September 2022, and will continue to publish them at quarterly frequency within one month after the end of each quarter,” it said.

Read: Uncertainty greets South Sudan dollar policy


Other measures to strengthen the banking system include a move to enforce the publication of audited financial statements by all commercial banks operating in South Sudan.

South Sudan’s implementation of a deposit insurance scheme will allow Juba to join other East African countries whose banking regulators have compensation schemes for depositors in the event of bank failure.

In Uganda, the Deposit Protection Fund increased the amount it pays each depositor of a failed bank to Ush10 million ($2,648.46), from Ush3 million ($794.5), while in Tanzania, the Deposit Insurance Board increased the amount of protected deposits from Tsh500,000 ($210.7) to Tsh1.5 million ($632.3).

In Kenya, the Kenya Deposit Insurance Corporation revised the deposit insurance coverage amount to Ksh500,000 ($3,623), from Ksh100,000 ($724.6) and introduced the risk-based insurance premium model for member institutions.

In Rwanda, the Deposit Guarantee Fund protects eligible deposits up to Rwf500,000 ($436.9) per depositor.

But Kenya his ahead of its peer, operating a deposit insurance scheme with an expanded mandate of risk minimisation and resolution of problem banks. Among these resolution measures are mergers and acquisitions and creation of bridge banks, interim banks established to manage the assets and liabilities of troubled lenders before being sold to strategic investors.

So far, only two countries in Africa — Kenya and Nigeria — run deposit insurance schemes with this expanded mandate. South Sudan is pushing for the de-dollarisation (use of domestic currency as legal tender) of the economy to tame dollar speculation, improve the value of its currency and lower the cost of living.