•Urges customers to patronise licensed banks …It’s long overdue –Experts
By Merit Ibe and Adanna Nnamani, Abuja
In reaction to the scathing economic realities accentuated by elevated inflation and naira depreciation, the Nigeria Deposit Insurance Corporation (NDIC) has increased the maximum deposit insurance coverage level for depositors of all categories of financial institutions in the country.
The Managing Director, NDIC, Mr Bello Hassan, who disclosed this at a press conference in Abuja on Thursday, said the development sprang from a decision taken during an Interim Management Committee (IMC) meeting held on April 24 and 25.
Under the new template, the NDIC raised the maximum deposit insurance coverage for Deposit Money Banks (DMBs) from N500,000 to N5,000,000, while that of Microfinance Banks (MFBs) rose from N200,000 to N2,000,000.
Additionally, the maximum pass-through deposit insurance coverage for Subscribers of Mobile Money Operators was moved from N500,000 to N5,000,000 per subscriber.
Deposit insurance coverage guarantees that customers’ bank deposits will be promptly reimbursed in the event of a bank failure. If a bank depositor holds more than N5 million, they can still reclaim amounts exceeding the insured limit via liquidation dividend following the disposal of a failed bank’s assets or the retrieval of loans from debtors.
The NDIC Chief further stated that the Corporation took into account factors such as inflation, per capita GDP, and exchange rates when determining the new insurance limit, noting that the objective was to enhance trust in the banking sector.
“The increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98 per cent of the total depositors compared with the current cover of 89.20 per cent. In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37 per cent compared with the current cover of 6.31 per cent of total value of deposits.
“The increase of the maximum deposit insurance coverage of MFBs from N200,000 to N2,000,000 would provide full coverage of 99.27 per cent of the total depositors compared with the current level of 98.76 per cent and would increase the value of deposits covered by deposit insurance to 34.43 per cent compared with 14.38 per cent of total value of deposit, currently covered.
“As part of the periodic evaluation of the effectiveness of the deposit guarantee, the Corporation conducted a Study in 2023, to determine the adequacy of the Maximum Deposit Insurance Coverage. This is in line with the Principle 8 of the International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance, which advised jurisdictions, to periodically review their deposit insurance coverage, to ensure that, it is credible and cover large majority of depositors to prevent risk of bank runs, but leave a substantial amount of deposits exposed to market discipline.
“Findings indicate that high percentages of depositors ranging from 89.20 per cent to 99.99 per cent were fully insured under the maximum deposit insurance coverage levels across different bank categories (DMBs, PMBs, MFBs, and PSBs), meanwhile, a substantial portion of the total value of deposits, remain uninsured.”
We need to stress at this juncture that high levels of uninsured deposits posed a risk of bank runs. Indeed, the International Association of Deposit Insurers (IADI) Brief No. 9 of 2023 that examined the recent bank failures in the United States of America and Switzerland, concluded that, high levels of uninsured deposits in insured institutions might increase the likelihood of bank runs with dire impact on the stability of the financial system.
Hassan, however, advised depositors to only patronize NDIC insured Fintechs (mobile money operators) which can all be found on the website.
He added not doing so would be at their own risk as the Corporation was not liable to offer compensation in any way.
Commenting on the rule, Prof Uche Uwaleke, Nigeria’s first Professor of the Capital markets, said: “The increase in the maximum deposit insurance coverage levels is a welcome development against the backdrop of elevated inflation and naira depreciation.
“This would no doubt boost confidence in the nation’s banking sector as well as financial inclusion”.
Also speaking, the Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, stated that the review was long overdue.
“If you look at the depreciation in the value of the currency and you compare it to the maximum insurance cover, I think it’s long overdue. It’s a good development. It will help give the depositor a lot more confidence in the banking system. No one prays for the collapse of any bank. The review should be periodic.
“The coverage amount should not be static for too long. It has been static for too long. It should be indexed against inflation so that as the inflation is increasing the nominal value of the coverage should also be increasing. We should be seeing at least an annual review of the coverage that is the only way insurance coverage can make sense”, he said.
Frank Onyebu, ex-chair, Manufacturers Association of Nigeria (MAN) said the new development was a fair reassessment based on the reality of today’s economic situation in Nigeria.
“It is the only way of mitigating the risks being borne by the insurance companies. These insurance companies have continued to be weighed down by huge risks which have increased dramatically with the deterioration of the economy. This is in line with the recent pronouncements on the revaluation of the banks, and possibly the insurance companies”, he explained.
