Amendments to the Deposit Insurance Law adopted

On 10 October 2019, the National Assembly of the Republic of the Serbia adopted the Bill on Amendments to the Deposit Insurance Law (the “Law”), published in the Official Gazette No. 73/2019 dated 11 October, 2019, effective eight days after publishing in the Official Gazette on 18 October 2019.

The Law amendments are such that the deposit insurance system now includes the bank restructuring process in addition to bankruptcy and liquidation. The changes also include the definition of new terms, so the concept of methodology for calculating deposit insurance based on risk in bank operations is also defined, as well as the definition of the target amount of the fund, which is one of the key parameters of the deposit insurance system. The amendments to the Law also stipulate a new article concerning the Deposit Insurance Fund (the “Fund”), ie what are the Fund’s sources and what is its purpose. The changes are such that the Deposit Insurance Agency (the “Agency”) is now able to use the Fund’s funds to finance its equipment, which involves providing adequate IT equipment, software solutions and licenses to support smooth and reliable disbursement of insured deposit amounts, when the insured event occurs. With the new changes, the Agency can now determine the amount of the premium based on the level of risk in the bank’s operations, which it will do by applying the methodology. All data for determining the level of risk are submitted to the Agency by the National Bank of Serbia. The Law stipulates that the Agency has to adopt a methodology for calculating risk based premiums in banks’ operations within one year of its entry into force. This change is a consequence of the harmonization of regulations with the EU regulations. In addition, the newly adopted amendments define the method for determining the regular premium rate, which needs to be determined no later than September 30 of the current year, the basis for the calculation of the premium, as well as the calculation of the premium. The Agency calculates and charges regular premiums for dinar deposits in dinars, while deposits in foreign currency are calculated and charged in euros. The basis for calculating the premium has been changed and is now calculated on the insured amounts of bank deposits, which is also a consequence of harmonization with the regulations of the European Union. The amendments to the Law allow the National Bank of Serbia to defer the payment of the extraordinary premium of an individual bank for up to six months, if this would endanger its liquidity or solvency, this decision is made by the National Bank of Serbia at the request of the bank. The article related to the target amount of the deposit insurance fund was amended, so that, among other things, the target fund’s ratio increased from 5% to 7.5%. The Law also protects depositors who have deposits in banks that are merged, so that they enjoy separate coverage for their deposits within six months of the date of merger.

The primary objective of amending to the Law is to bring the financial deposit system further into line with international practices and standards, and above all EU regulations, in the current conditions of stability of the financial system. Although the first version of the law passed in 2015 that was significantly improved and aligned with a new set of financial laws, it was now necessary to bring it into line with international best practice in this area.