The financial sector in Belize is a vital component of the country’s economy, providing essential banking services to individuals and businesses. However, the jurisdiction has its inherent risk factors, such as vulnerability to global financial shocks and exposure to economic and political events. In this context, it is crucial to understand the importance of bank deposit insurance and its implications for retail depositors and small businesses in Belize.
Belize’s banking sector comprises various types of licensed banks, including commercial banks, offshore banks, credit unions, and development finance institutions. These financial institutions cater to the diverse needs of the country’s population and support its economic growth.
Bank deposit insurance plays a critical role in protecting retail depositors and small businesses by providing a safety net in case of bank failures. Deposit insurance schemes help maintain public confidence in the banking system, reduce the risk of bank runs, and contribute to overall financial stability.
In Belize, the deposit insurance scheme is called the Deposit Guarantee Scheme (DGS). The DGS is a formal mechanism that guarantees retail depositors and small businesses a specific coverage amount in the event of a bank failure. The scheme’s primary mandate is to protect these depositors and ensure the stability of the financial system.
The Deposit Guarantee Scheme of Belize has several objectives and key details. Firstly, the DGS aims to maintain public trust in the banking system by safeguarding depositors’ funds. Secondly, it seeks to provide prompt compensation to eligible depositors in case of bank failures. The coverage amount is set at BZD 20,000 (Belize dollars) per depositor, per licensed bank. However, it is essential to note that the DGS covers only deposits denominated in Belize dollars and held in commercial banks and credit unions. Offshore banks, development finance institutions, and deposits in foreign currencies are not covered under the scheme.
Despite the absence of a comprehensive deposit guarantee scheme that covers all licensed banks and all currencies, Belize’s financial sector still has protective elements in place. These include various laws and acts that govern the banking sector, such as the Banks and Financial Institutions Act and the International Banking Act. These legal frameworks aim to strengthen the financial system’s stability, protect depositors’ interests, and ensure compliance with international best practices.
Regulators in Belize also play a significant role in maintaining financial stability and safeguarding customer deposits. They enforce prudential regulations, conduct regular inspections, and monitor banks’ risk management practices. In addition, regulators can intervene when banks face difficulties, taking measures such as recapitalization, restructuring, or facilitating mergers and acquisitions.
Private sector solutions and the sale of a failing bank’s business to another institution are other important aspects of deposit protection in Belize. In many cases, a healthy bank may acquire a failing bank’s assets and liabilities, including customer deposits, thereby ensuring that depositors do not lose their funds.
Over the past decade, Belize has experienced a few bank failures. For instance, in 2016, the Central Bank of Belize revoked the license of the Belize Bank International Limited due to its failure to meet regulatory requirements. Similarly, in 2019, Choice Bank Limited faced a liquidity crisis, resulting in its eventual liquidation.
These bank failures underscore the importance of deposit insurance and understanding the risk factors associated with banks operating in Belize. Account holders can learn valuable lessons from such events, such as the need to diversify their deposits across different banks and currencies and stay informed about their banks’ financial health and regulatory compliance.