Currently, the Namib Deposit System in funded ex poste but the government has decided to shift to collection of premiums on an ex ante basis. Two premium collection schemes are proposed based on a percentage collection on total deposits held by any bank enrolled in the scheme. The following banks are enrolled in the Namib Deposit Insurance scheme:

NAME OF BANK TOTAL DEPOSITS

African Bank for Savings 335,000,000,000

Namib National Bank 435,000,000,000

Peoples Savings Bank 517,500,000,000

Namib Islamic Bank 715,000,000,000

Part-1

If annual premiums of .085% are collected from banks in the system, how much will be collected from each bank and how much in total at the end of the year? [B1](2 marks)

Part-2

Not all the banks are happy with the proposed scheme and the better managed banks propose to the government that premiums should be risked adjusted in light of performance on stress tests conducted by the Central Bank of Nambia. Take note of the following data:

NAME OF BANK STRESS TEST RESULT

African Bank for Savings C

Namib National Bank AB

Peoples Savings Bank BC

Namib Islamic Bank A

In the grading, a stress test result of A is the best and C the worst. Suppose that the premiums are risk adjusted as follows:

STRESS TEST RESULT* RISK-ADJUSTED PREMIUM

A 0.065%

B 0.085%

C 0.105%

*With reference to In-between stress tests results (i.e. AB or BC), take the average of the two relevant letters.

How much will be collected from each bank and how much in total at the end of the year? [B1](2 marks)