A historic success for the deposit insurance system: One year after the Sberbank CZ collapse, more than CZK 25 billion has been paid out to depositors

Prague, 27 February 2023: The largest deposit compensation payout in the history of the Czech deposit insurance system is successfully continuing one year after the Sberbank CZ collapse. Over the past 12 months, the Financial Market Guarantee System has paid out deposit compensation through Komerční banka branches to over 87,000 Sberbank CZ clients, who have so far received CZK 25.362 billion.

The Financial Market Guarantee System began paying out compensation for deposits at the collapsed Sberbank CZ on 9 March last year, seven business days after the bank’s collapse. “Most clients come to collect their deposit compensation in the days immediately after payout commences. This meant 13,348 clients on Wednesday, 9 March, 7,971 the next day, and 6,301 clients on Friday, 11 March. Approximately two thirds of the collapsed bank’s clients came to Komerční banka branches, which we are using for payouts, to obtain deposit compensation in March. The numbers arriving per day have been in the middle and lower hundreds since the end of March,” says Renáta Kadlecová, Financial Market Guarantee System managing director.

The Guarantee System is legally obliged to commence deposit compensation payment for a failed financial institution within seven business days of the date on which the Czech National Bank announces that the financial institution is unable to meet its obligations. It was no different in this case when the bank collapsed almost overnight. Moreover, in terms of financial volume, this is the largest ever deposit compensation payout. “In terms of the total amount of insured deposits, the Sberbank payout is the largest. In terms of the number of clients receiving payments, the largest payout in history was that for clients of the bankrupt Union banka in 2003. At that time, there were 130,000 clients. However, Sberbank comes in a close second with over 121,000 clients,” Renáta Kadlecová explains.

By law, Sberbank CZ clients have three years to collect their deposit compensation. More than 87,000 of the bank’s clients have collected their deposit compensation so far, so the remaining approximately 34,000 clients have until 10 March 2025 to do so. “The clients of collapsed banks entitled to the payout of deposit compensation often include a large number with small balances on their accounts. It is not uncommon for such clients not to come to collect compensation. It is simply not worth it for them to go to a branch of the paying bank for a payout of only a few crowns,” Renáta Kadlecová explains. Such uncollected funds will remain in the Guarantee System and will be used for other deposit compensation payout.

Seven days and one hundred percent of the deposit

There has not always been a guarantee that clients of failed financial institutions will get 100% of their deposits back up to the equivalent of EUR 100,000. Both the insured deposit amount and the time until the funds are received from the failed institution have changed over time. For example, when the Deposit Insurance Fund was established, only 80% of the value of a deposit was insured, and this only up to CZK 100,000. “This de facto co-insurance only disappeared in 2008 with the adoption of a European directive. At that time, the insured amount was also increased from CZK 400,000 to the equivalent of EUR 50,000, later rising further to EUR 100,000,” Renáta Kadlecová says.

Something else relatively new is that depositors do not have to go to a paying bank branch in person for their deposit compensation. They can also request it by correspondence. Over the past 12 months, 11,575 entitled people have taken advantage of this option to collect more than CZK 1.5 billion.

If clients do not agree with the compensation amount or have found a discrepancy, they can complain to the Guarantee System. Since the commencement of the payouts, 825 Sberbank CZ clients have done so, with the Guarantee System assessing approximately 20% of such complaints as justified. The most common reasons for unjustified complaints were, for example, that clients were not paid their entire deposits because they exceeded the legal limit of EUR 100,000 per person, that they were not paid out in the currency of the account (often in rubles), or that they were not compensated for balances on investment accounts (securities), which are not subject to statutory insurance.

Large savers and local authorities will get their turn in the insolvency proceedings

By law, only the deposits of natural and legal persons are insured under the Guarantee System, up to the equivalent of EUR 100,000 and EUR 200,000 respectively, and on condition that the legal conditions for obtaining increased compensation are met1. The deposits of some smaller local authorities that meet the legal conditions are also insured2. The remaining creditors, or creditors that had funds with Sberbank CZ exceeding the statutory deposit insurance limit, will be satisfied during the insolvency proceedings for the bank.

“Based on the progress so far and statements made by the insolvency administrator, I believe that this will be the historically most successful and fastest satisfaction of creditors in insolvency proceedings. The average duration of insolvency proceedings for banks and cooperative credit unions in the Czech Republic is currently about 15 years, yet in the case of Sberbank, receivables could be settled within one year of the commencement of the insolvency proceedings. The average amount of the first payment from bank insolvency proceedings is usually 26% of the receivable, yet in the insolvency proceedings for Sberbank CZ creditors could receive up to 100% of their receivables,” Renáta Kadlecová notes.

The success of the insolvency proceedings now depends on one thing – namely actions brought against the insolvency process by a small group of creditors. “If they continue with their actions against the process, there is a risk that the Sberbank CZ insolvency proceedings will, just like other protracted cases, result in minimal creditor satisfaction,” Renáta Kadlecová concludes.

1 https://www.garancnisystem.cz/en/compensation-amount

2 https://www.garancnisystem.cz/vklady-obci-a-kraju-nejsou-od-ucinnosti-nove-pravni-upravy-automaticky-pojisteny-vetsina-vsak-muze-pojisteni-opet-ziskat-nepojisteny-jsou-dale-vklady-statu-i-pripadnych-dalsich-statnich-organu (in CZ only)

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