MDIC acts to boost awareness on deposit insurance

GOVERNMENT-OWNED Malaysia Deposit Insurance Corp (MDIC) hopes to make it mandatory for banks in the country to inform clients which products offered are insured by the body.

Its chief executive officer Jean Pierre Sabourin said a proposal on the matter was sent to the Finance Ministry early this year and is being reviewed by the Attorney General's Office.

"We hope to receive a decision on it soon and hopefully implement the new ruling by the third quarter of 2008," he told reporters at a media briefing in Kuala Lumpur yesterday.

He said commercial and Islamic banks in Malaysia have yet to provide sufficient information or educate clients on whether their products, especially deposits, are insured by MDIC.

"The low public awareness about the deposit insurance system and lack of understanding of MDIC's role has prevented clients in making sound decisions in choosing the right products, which, at the same time, ensures safety of their deposit," he said.

Deposit insurance is a system that protect depositors against loss of their insured deposits placed with member banking institutions in the unlikely event that a member institution collapses.

In such event, depositors will be reimbursed promptly up to the coverage limit of RM60,000 per depositor.

MDIC at present has 35 members, comprising commercial and Islamic banks, both local and foreign.

In an effort towards financial system stability, MDIC has introduced the Differential Premium System to promote sound risk management practices within its member banks by assessing premiums according to their individual risk profile.

"In the previous years, all member banks paid the same premium rate of 0.06 per cent of total insured deposits," Sabourin said.

He said starting this year, premiums will be assessed based on the category the banks fall into. There are four categories, ranging from 1 (highest) to 4 (lowest).

Under Premium Category 1, the premium rate is set at 0.03 per cent, Category 2 at 0.06 per cent, Category 3 at 0.12 per cent and Category 4 at 0.24 per cent of total insured deposits. A transitional period of one year will be given to allow banks to adjust to the new system, which took effect on May 8.

MDIC targets to achieve total revenue of RM128 million this year against RM115.9 million in 2007.

Currently, there are RM79 billion insured deposits in the country.