The Nigeria Deposit Insurance Corporation (NDIC) has announced an increase in the maximum deposit insurance coverage levels for all licensed deposit-taking financial institutions with immediate effect.
The corporation’s Managing Director, Bello Hassan, during a media briefing on Thursday in Abuja, said the upward review of the insurance cover was in line with the corporation’s commitment to enhancing depositors’ protection, public confidence, financial inclusion, and stability of the financial system.
According to him, the decision was taken by the NDIC’s Interim Management Committee (IMC) during its 18th meeting held on April 24 and 25 in Abuja.
Hassan said the adjustments to the maximum deposit insurance coverage reflected the NDIC’s dedication to adapt and evolve in response to the changing landscape of the financial industry while staying steadfast in the pursuit of a secure and resilient banking environment for all.
Specifically, based on the adjustments, Deposit Money Banks (DMBs) will see increase of the maximum deposit insurance coverage from N500,000 to N5,000,000, signifying full coverage of 98.98% of the total depositors compared with the current cover of 89.20%; Microfinance Banks (MFBs) have seen an immediate increase of the maximum deposit insurance coverage from N200,000 to N2,000,000, indicating a full coverage of 99.27% of the total depositors compared with the current level of 98.76%; Primary Mortgage Banks (PMBs)have seen an increase of the maximum deposit insurance coverage from N500,000 to N2,000,000 and would provide full coverage of 99.34% of the total depositors compared with the current 97.98%.
Also covered in the latest regulatory directive is Payment Service Banks (PSBs), the maximum deposit insurance cover has now increased from N500,000 to N2,000,000 and would provide full coverage of 99.99% of the total number of depositors.
For subscribers of Mobile Money Operators (MMOs), the increase of the maximum Pass-through deposit insurance coverage from N500,000 to N5,000,000 per subscriber per MMO as the applicable coverage level for depositors of DMBs.
In terms of the value of deposit covered, the revised coverage will 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 for DMBs; 34.43% compared with 14.38% of total value of deposit for MFBs; 21.04% compared with 10.77% currently covered for PMBs and the value of deposits covered by deposit insurance to PSBs has increased to 43.10% compared with the current cover of 40.60%.
The deposit insurance expert maintained that the revised deposit insurance coverage had 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: “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
“The NDIC’s mandate of Deposit Guarantee is a critical component of depositors’ protection, as it guarantees the payment of deposits up to a maximum set limit in the event of bank failure”, Hassan added.
It would be recalled that 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.
Hassan disclosed that findings of the Study indicated 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) while a substantial portion of the total value of deposits, remain uninsured. He stressed that high level of uninsured deposits posed a risk of bank runs.
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.
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.
The NDIC boss reassured bank depositors and other stakeholders in the banking system of the corporation’s unwavering commitment to protecting depositors and contributing to the stability of the financial system.
