May 5, (THEWILL)- As deposit money banks scamper for resources to meet up with the new capital base requirement announced by the Central Bank of Nigeria (CBN), the Nigerian Deposit Insurance Corporation (NDIC) has taken proactive measures to checkmate possible industry disharmony that might erupt from the exercise.
Apparently taking a cue from the challenges that occurred during the last recapitalisation exercise in 2002, which left some financial services institutions in ruins, posing a huge threat to depositions, the NDIC recently announced substantial increases in maximum deposit insurance coverage for various categories of deposit-taking financial institutions licensed by CBN.
Effective immediately, the maximum deposit insurance coverage for depositors of Deposit Money Banks (DMBs) has increased from N500,000 to N5,000,000; Microfinance Banks (MFBs) from N200,000 to N2,000,000 and Primary Mortgage Banks (PMBs) from N500,000 to N2,000,000.
Others are Payment Service Banks (PSBs) from N500,000 to N2,000,000 and subscribers of Mobile Money Operators (MMOs) from N500, 000 to N5,000,000 per subscriber, aligned with DMBs’ coverage level.
The MD/CEO of NDIC, Mr. Bello Hassan who made the announcement at a press conference in Abuja Thursday, said the Interim Management Committee (IMC) of the Corporation approved the revised maximum deposit insurance coverage during its 18th meeting held on April 24th and 25th, 2024.
According to him, the decision is in line with the Corporation’s commitment to enhancing depositors’ protection, bolster public confidence, financial inclusion, and stability of the financial system
In arriving at the new coverage levels, Hassan said the study considered factors, such as deposit distribution, impact of inflation, per capita GDP, and exchange rate among others, using statistical models.
He explained that the new coverage for DMBs now covers 98.98 per cent of total depositors and 25.37 per cent of total deposits while that of MFBs covers 99.27 per cent of total depositors and 34.43 per cent of total deposits.
For the PMBs, the coverage covers 99.34 per cent of total depositors and 21.04 per cent of total deposits while for Payment Service Banks (PSBs) 99.99 per cent of total depositors would be covered which makes up 43.10 per cent of total deposits.
Hassan stressed that, the revised deposit insurance coverage has balanced the NDIC’s goals of deposit protection and financial system stability with incentives for depositors to practice market discipline and prevent banks from unnecessary risk-taking and moral hazard.
He added that consideration was given to ensure that the coverage was limited but adequate enough to protect a large number of depositors and credible enough to prevent the destabilizing effect of bank runs, he stated.
On funding, the NDIC boss disclosed that the adoption of the revised maximum deposit insurance coverage is supported by the Corporation’s current funding represented by the balances in the various Deposit Insurance Funds (DIFs), expected annual premium collection, enhanced supervision that would reduce the likelihood of bank failures, effective bank resolution frameworks and other funding arrangements provided by the NDIC Act No. 33 of 2023.
By this development, in the event of a financial institution’s failure and the revocation of its license by the Central Bank of Nigeria (CBN), the NDIC will reimburse eligible depositors up to the maximum insured amount of N5 million in Deposit Money Banks (DMBs) and N2 million in Microfinance Banks (MfBs) and Primary Mortgage Banks (PMBs).
The Corporation sells the assets of failed banks and collects debts owed to them so that depositors whose claims exceed the maximum insured sums can receive liquidation dividends on a pro-rata basis.
The liquidation dividend is the amount paid to depositors by the NDIC after a bank is liquidated if the depositor’s amount exceeds the insured amounts. Payments to creditors and shareholders are made from the proceeds after all depositors have been repaid from the assets of closed financial institutions.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
