NATIONAL DEPOSIT GUARANTEE INSTITUTION (NDGI)

I. Establishment

The NDGI was established by Law no. 28/67 of May 9th, 1967 as a cooperative joint stock company, with banks participating in half of the capital and the government in the other half. The impetus for the establishment of a body to guarantee bank deposits came with the Intra crisis in 1966.

II. Objective

The main objective of the NDGI is to protect smaller depositors.

III. Guarantee and Premium

The guarantee covers resident and non-resident deposit accounts in all currencies, except for foreign currencies deposits held in branches abroad as dictated by Law no. 110, dated 7/11/1991. Deposits in foreign currencies started to be covered as of end 1991, and the coverage is meant to last till end 1998. The guarantee is paid per depositor and per bank ( the bank and its branches are considered as one institution ) and not per each account taken individually. The Law no. 28/67 denies the privilege of guaranteed accounts to the bank president, its Board of Directors, auditors, as well as their spouses and relatives.

The annual premium is paid on credit accounts excluding own funds, payment orders, interbank operations and reconciliation banks accounts. According to decree no.29 of April 1, 1975 which established a free banking zone, banks do not pay a premium on non-resident deposit accounts in foreign currencies held at a bank’s head office in Lebanon. The annual premium is to be specified at the beginning of every year by a decree from the Council of Ministers upon the Minister of Finance proposal and the NDGI consultation.

 

a) Historical developments

Initially, only deposits in Lebanese pounds were guaranteed and that was up to LL 30,000 per depositor in each bank ( equivalent to USD 10,000 at the time). The guaranteed amount was then raised to LL 250,000 ( equivalent to USD 2,874 ) in 1986, then to LL 1 million ( equivalent to USD 1,887 ) in 1988 and to LL 5 million (equivalent to USD 5,688 ) in 1991, the level at which it remains today and which is equivalent to USD 3,235. Starting end 1991, deposits in foreign currencies held at banks existing and operating in Lebanon, started to be covered up to LL 5 million. This coverage which was meant to last for two years only, was extended till end 1998.

According to Article 15 of Law no. 28/67, banks existing and operating in Lebanon have to pay the NDGI an annual premium not exceeding 0.2% of total deposits in the first three years of the Institution’s formation and then 0.15% in the following years.

b) Current situation

As it has been mentioned in the previous section, the guaranteed amount today is LL 5 million for
LL deposits and foreign currency deposits .

Since 1996, the premium paid on banks credit accounts has been reduced from 0.15% to 0.05% with the return of financial stability to the Lebanese banking sector.

IV. Administration

The by-laws of the Institution as outlined by decree no. 11564 of 30/12/1968, stipulates that the administration of the institution is to be handled by a Board of Directors composed of seven members, three of whom represent the government and are appointed by the Council of Ministers upon the recommendation of the Minister of Finance and for a period of three years. The remaining four are elected by the member banks in a general assembly.

The government ensures additional control through a commissioner appointed for a three-year term by a decree pursuant to a proposal of the Minister of Finance. The commissioner may order reconsideration of decisions made by the administrative council, with the exception of decisions related to the election of the president and vice president of the council.

The Board elects a president who should be of Lebanese nationality. The president is a full time officer and cannot receive any salary or other financial benefits from the bank he represents. He manages the affairs of the institution within the powers granted to him by the Lebanese Code of Commerce and by the Board of Directors. The President has to refer to the Board for decisions outside the powers granted to him by the Board . Other elected officers are the Vice President who has to be a member of the Board, and a secretary of the Board who can be from or outside the Board. Their functions are restricted to the Board and they do not have any direct managerial function. The entire Board is subject to the Bank Secrecy Law.

V. Capital Formation

According to Article 12 of Law no. 28/67, the capital of the NDGI is to be raised out of:

1. The contribution of each bank operating in Lebanon, and this contribution was estimated at an amount equal to LL 100,000 half of which to be paid at the Banque du Liban, and the other half to be paid within one year of the Institution formation.

2. The contribution of the Lebanese government in an amount equal to all banks’ contribution.

The capital is to be represented by nominal shares, each worth LL 1,000. This capital increases or decreases whenever a new bank is listed or deleted from the banks’ list by the amount of the new bank contribution plus the equivalent government contribution. In the case of deletion, funds are transferred to a special reserve account at BDL out of which bank depositors will be paid out. If any residual is left from the funds, it is to be divided equally between the deleted bank and the government.

Shareholders have the right to share in the corporation profits and in the general assembly voting. They have to abide by the Institution rules and to pay the annual premium imposed on guaranteed banks.

VI. Sources of Funds and Income

The NDGI sources of funds are:

• The annual premium paid by banks.

• The amount paid annually by the government which is equivalent to the total annual premium paid by banks.

The NDGI income is derived from financial and other investments in the form of dividends, interests, rent, etc….

The Institution funds are held with the Banque du Liban in a special account that bears no interest, and part of them could be invested in Lebanese Treasury Bills, bonds and real estate inside Lebanon. The Institution is entitled to issue bonds within the rules set in its by-laws and according to the Lebanese Code of Commerce.

The NDGI is exempted from taxes, stamp duties and all other fiscal charges.

VII. Procedures and Activities

The main purpose of the institution is to compensate depositors of failed banks to the guarantee ceiling dictated by Law no. 28/67 and the following amendments. It is worth noting that the guarantee is per depositor and per bank and not per each account taken individually. For compensation, a depositor’s accounts are consolidated and guaranteed at present up to a ceiling of LL 5 million for the aggregate. Joint accounts as well as heirs accounts, are treated as one account and one beneficiary.

When a bank is declared in cessation of payment by a judicial ruling, receivership is placed in the hands of a Committee appointed by the court. The process of compensating depositors requires the intervention of three parties: The depositor, the Committee of receivers and the NDGI.

• The depositor has to make a claim to the Committee with proof of ownership, and to wave his right to bank secrecy.

• The Committee of receivers has to transmit to the Institution full records of depositors with a description of their accounts in addition to a signed document whereby they wave their right to bank secrecy.

• The Institution then tabulates the data, calculates the sum of compensation per depositor, and issues a cheque in favor of the depositor. A team from the Institution attends at the desks of the bank to distribute cheques within a specified period of time. Subsequently, depositors can call at the offices of the Institution to claim their cheques. The Institution then transmits to the Committee of receivers the information related to depositors rights , claims, and compensated amounts.