NDIC Warns Depositors Against Patronizing Unregistered Deposit Institutions
The Nigeria Deposit Insurance Corporation(NDIC), has warned Nigerians against patronising unlicensed and unregistered deposit institutions as they are not covered by the Corporation.
The Managing Director/Chief Executive of NDIC, Bello Hassan, who stated this on Thursday at the Review of the Maximum Deposit Insurance Coverage Level in Abuja.
The NDIC boss however advised depositors do business with Fintechs, whose names are on CBN and NDIC websites.
Hassan noted that the Corporation has increased the maximum deposit insurance coverage for Deposit Money Banks(DMBs) from N500,000 to N5m, which would provide full coverage of 98 per cent of the total depositors compared with the current cover of 89.20 per cent.
He said 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 maximum deposit insurance coverage for depositors of DMBs was set at N50,000 at the inception of the Corporation in 1989 through a research survey. The amount was set in such a way that up to 85% of the total depositors in the nation’s insured banks would be 100% covered.
Subsequently, 96% of all depositors were protected when 2 the coverage ceiling was raised from N50,000 to N200,000 in 2006. The coverage limit of N100,000 was also set, for the first time, for MFB and PMB depositors in the same year. In the year 2011, the coverage limits for DMBs increased from N200,000 to N500,000 and from N100,000 to N200,000 for depositors of MFBs and PMBs.
The coverage level was further adjusted to N500,000 in 2016 for PMB depositors as well as subscribers of licensed Mobile Money Operators (MMOs). Coverage of N500,000 was equally extended to depositors of Payment Service Banks (PSBs) in 2020. Meanwhile the coverage for DMBs remained at N500,000.
“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”, he said.
He said the development 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% to 99.99% 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 level 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.
Based on these considerations, and in line with our commitment to enhancing depositors’ protection, public confidence, financial inclusion, and stability of the financial system, I am pleased to announce that the NDIC’s Interim Management Committee (IMC), during its 18th meeting held on April 24th and 25th, approved an 3 increase in the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions with immediate effect. The adjustments are as follows: i. Deposit Money Banks (DMBs):
The increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, would provide full coverage of 98.98% of the total depositors compared with the current cover of 89.20%. In terms of the value of deposit covered, the revised coverage would increase the value of deposits covered by deposit insurance to 25.37% compared with the current cover of 6.31% of total value of deposits. ii. Microfinance Banks (MFBs): The increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, would provide full coverage of 99.27% of the total depositors compared with the current level of 98.76% and would increase the value of deposits covered by deposit insurance to 34.43% compared with 14.38% of total value of deposit, currently covered. iii. Primary Mortgage Banks (PMBs):
The increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 would provide full coverage of 99.34% of the total depositors compared with the current 97.98% and would increase the value of deposits covered by deposit insurance to 21.04% compared with 10.77% of total value of deposit, currently covered.
“I must emphasise 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 said.
