10 years protecting depositors in the Republic of Kosovo

Dear reader,

The 10th anniversary of its founding, finds DIFK and not only, faced with an unprecedented situation. As part of the financial safety net, COVID-19 has also affected the Kosovo Deposit Insurance Fund (DIFK) as such situations highlight the role and importance of these institutions in ensuring financial stability. Therefore, DIFK as the only public entity in Kosovo that provides deposit insurance, during the pandemic year took the necessary actions to ensure the continuity of work, and increased communication and exchange of information with the financial network to ensure timely exchange of appropriate information regarding the stability of the banking sector.

As a result of the situation, on this anniversary, we are addressing you remotely to inform you about the achievements of DIFK during this decade.

We cannot but start from the very beginning of the establishment of DIFK and thank the contributors who provided the initial capital to the fund: the Ministry of Finance, Kreditanstalt für Wiederaufbau (KfW) and the World Bank. KfW, in the framework of its additional support, over the years has provided assistance to DIFK in laying the first cornerstones for the creation of the regulatory, operational and functional framework.

Being part of the financial safety net, since its establishment in 2011, DIFK has managed the Deposit Insurance System in Kosovo with the main mandate of insuring depositors and guaranteeing compensation in case of license revocation and bank closure by the Central Bank of Republic of Kosovo (CBK). In achieving the main objective of protecting small depositors and ensuring efficient compensation of insured depositors, DIFK from the very beginning has started building the necessary basis around the compensation function and has adopted several internal regulations. In particular, DIFK has drafted detailed regulations for the compensation of insured deposits covering all areas of the compensation process.

DIFK with the financial support of the European Bank for Reconstruction and Development has built the operational and technical framework for the compensation of depositors in case of closure of a bank (Deposit Compensation System), has regulated the workflow process, has set deadlines and detailed activities from the preparatory phase to the completion of the compensation process. Also, has drafted the rule of selecting the agent bank for payment which will pay the compensated amount on behalf of DIFK. In line with these developments, in 2017 DIFK has conducted simulations of insured events, based on the scenario prepared in accordance with the EBA Guideline, as well as tests on the operational readiness of the working groups and the Paying Agent Bank. Additionally, during the period 2018-2020, DIFK has conducted tests with member banks, to test their readiness to submit quality data within a certain deadline, for the swift and accurate determination of insured deposits.

To ensure financial stability according to the recommended parameters and create easier access to liquidity in case of closure of a bank, under the support and guarantee of the Ministry of Finance, DIFK has signed two (2) International Financial Agreements for credit lines in amount of EUR 34 million with the European Bank for Reconstruction and Development (EBRD). Thanks to funding and capital contributions, DIFK has managed to increase the coverage limit during this period (from 3,000 to 4,000 Euro, and currently to 5,000 Euro) and today covers more than 990 million Euro of deposits, which is three times the amount of coverage provided in 2011 when DIFK started operating. On the other hand, over 99% of depositors are covered by the Deposit Insurance Fund in Kosovo up to the insured limit.

On the international level, since 2013, respectively 2017, DIFK is a member of the International Association of Deposit Insurers (IADI) and the European Deposit Insurance Forum (EFDI). Membership in these two institutions during these years has helped DIFK for continuous capacity building and adaptation of European standards in the field of deposit insurance. Further, in order to approximate the Deposit Insurance System in Kosovo with international standards, during 2015 DIFK has conducted a compliance assessment with the Basic Principles of IADI. The results and recommendations of this evaluation have helped DIFK in setting objectives and setting strategic direction for the period 2018-2022 and undertaking activities to meet the recommendations arising from this assessment. On the other hand, the cooperation and support of donors over the years such as KfW, the World Bank (FinSAC) and the EBRD in the implementation of specific projects in accordance with best international practices is marked as a special contribution to the construction of DIFK so far.

Cooperation with the financial safety net, the Ministry of Finance and the CBK, is marked by signing of memoranda of understanding and their implementation where DIFK has become part of the Financial Stability Committee, which contributes to the coordination of efforts to maintain financial stability, especially in terms of crisis management and preparedness. Also, the cooperation with the CBK in terms of information exchange and examination of member banks marked the strengthening of the mandate of DIFK.

In the medium term, DIFK activities are focused on increasing cooperation with member banks, mainly in terms of implementing the guidelines issued by the European Banking Authority (EBA) for risk-based premiums, automation of the premium reporting process and increase of the quality of depositor data submitted to DIFK so that depositors’ compensation and calculation of premiums is in line with DIFK requirements.

DIFK activities have a common goal, which is to further strengthen its mandate in line with its mission, vision, and values. Therefore, DIFK is proactively committed to improving and advancing the deposit insurance system to help ensure financial stability and confidence in the banking sector. In this regard, during this year we are reviewing the DIFK law which will further advance the deposit insurance system towards the best European and international standards.

In the end, all these achievements and the mandate of DIFK would not have been possible without the initiative of the Government of Kosovo, the Central Bank of the Republic of Kosovo, KfW, and international financial partners for the establishment of the Deposit Insurance System in Kosovo. Therefore, we are grateful for the continuous support you have provided and continue to provide in strengthening the mandate of depositor insurance in the Republic of Kosovo.